-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M7dtNmT2gX9MG5fIwOpZ9mYj+vKiIcnCGpUPixkhPGoHGtHfk9R/i6zqWBOv66oC /iwE2fskwuOAxCrfPUworg== 0000950123-95-002962.txt : 19951023 0000950123-95-002962.hdr.sgml : 19951023 ACCESSION NUMBER: 0000950123-95-002962 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951020 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARLEN CORP CENTRAL INDEX KEY: 0000007346 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 132668657 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06675 FILM NUMBER: 95582935 BUSINESS ADDRESS: STREET 1: 505 EIGHTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127368100 MAIL ADDRESS: STREET 1: 505 EIGHTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: ARLEN REALTY & DEVELOPMENT CORP DATE OF NAME CHANGE: 19860121 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission file number 1-6675 THE ARLEN CORPORATION ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 13-2668657 - ---------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 505 Eighth Avenue, New York, New York 10018 - ---------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 736-8100 Not Applicable ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $1 par value - 29,770,224 shares outstanding as of October 6, 1995 (excluding shares owned by subsidiaries of the Registrant) PAGE 1 OF 210 PAGES EXHIBIT INDEX ON PAGE 21 2 THE ARLEN CORPORATION AND SUBSIDIARIES INDEX ================================================================================
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets -- August 31, 1995 and 1994 (unaudited) 4 Consolidated balance sheet -- February 28, 1995 (unaudited) 5 Consolidated statements of operations -- Six and three months ended August 31, 1995 and 1994 (unaudited) 6 Consolidated statements of cash flows -- Six months ended August 31, 1995 and 1994 (unaudited) 7-8 Notes to consolidated financial statements 9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-15 PART II. OTHER INFORMATION 16-19 SIGNATURES 20
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements 3 4 THE ARLEN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($000s Omitted) (UNAUDITED) ================================================================================
August 31, ---------- ASSETS 1995 1994 ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 1,435 $ 826 Certificates of deposit 228 218 Accounts receivable, net 12,248 11,104 Inventories 6,429 4,147 Other current assets 898 313 ----------- ---------- TOTAL CURRENT ASSETS 21,238 16,608 PROPERTY AND EQUIPMENT, net 1,450 985 OTHER ASSETS 704 765 ----------- ---------- TOTAL ASSETS $23,392 $18,358 =========== ========== LIABILITIES AND CAPITAL DEFICIT ------------------------------- CURRENT LIABILITIES: Notes payable (including $2,742 and $2,754 due to related parties in 1995 and 1994) $ 3,803 $ 6,025 Accounts payable 3,363 2,780 Accrued interest payable (including $766 and $761 due to related parties in 1995 and 1994) 933 1,621 Accrued state income taxes 1,182 1,210 Accrued other 10,375 9,674 Current portion of long-term obligations (including $455 and $476 due to related parties in 1995 and 1994) 612 486 ----------- ---------- TOTAL CURRENT LIABILITIES 20,268 21,796 LONG-TERM OBLIGATIONS (including $1,203 and $1,383 due to related parties in 1995 and 1994) 4,370 1,387 SUBORDINATED AMOUNTS DUE TO RELATED PARTIES 123,116 113,396 ----------- ---------- TOTAL LIABILITIES 147,754 136,579 COMMITMENTS AND CONTINGENCIES CAPITAL DEFICIT (124,362) (118,221) ----------- ---------- TOTAL LIABILITIES AND CAPITAL DEFICIT $23,392 $18,358 =========== ==========
See notes to consolidated financial statements 4 5 THE ARLEN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET February 28, 1995 ($000s Omitted) (UNAUDITED) ================================================================================ ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 1,192 Certificates of deposit 222 Accounts and notes receivable, net 11,109 Inventories 4,731 Other current assets 529 ------------ TOTAL CURRENT ASSETS 17,783 PROPERTY AND EQUIPMENT, net 903 OTHER ASSETS 703 ------------ TOTAL ASSETS $19,389 ============ LIABILITIES AND CAPITAL DEFICIT ------------------------------- CURRENT LIABILITIES: Notes payable (including $2,742 due to related parties) $ 6,281 Accounts payable 2,344 Accrued interest payable (including $622 due to related parties) 776 Accrued state income taxes 1,137 Accrued other 9,993 Current portion of long-term obligations (including $722 due to related parties) 722 ------------ TOTAL CURRENT LIABILITIES 21,253 LONG-TERM OBLIGATIONS (including $1,246 due to related parties) 1,246 SUBORDINATED AMOUNTS DUE TO RELATED PARTIES 118,381 ------------ TOTAL LIABILITIES 140,880 COMMITMENTS AND CONTINGENCIES CAPITAL DEFICIT (121,491) ------------ TOTAL LIABILITIES AND CAPITAL DEFICIT $19,389 ============
See notes to consolidated financial statements 5 6 THE ARLEN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($000s Omitted) (UNAUDITED) ================================================================================
Six months ended Three months ended August 31, August 31, ---------- ---------- 1995 1994 1995 1994 ---- ---- ---- ---- SALES $28,426 $25,475 $15,276 $12,822 COST OF SALES 17,676 15,135 9,744 7,480 -------- -------- -------- -------- Gross profit on sales 10,750 10,340 5,532 5,342 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 8,288 7,560 4,253 3,906 -------- -------- -------- -------- Operating income 2,462 2,780 1,279 1,436 OTHER (CHARGES) CREDITS: Interest expense (including amounts due to related parties of $4,898 and $2,450 in 1995 and $4,585 and $2,300 in 1994) (5,356) (4,912) (2,698) (2,459) Other income 23 6 14 3 -------- -------- -------- -------- Net loss ($2,871) ($2,126) ($1,405) ($1,020) ======== ======== ======== ======== LOSS PER COMMON SHARE ($0.09) ($0.07) ($0.05) ($0.04) ======== ======== ======== ========
See notes to consolidated financial statements 6 7 THE ARLEN CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS ($000s Omitted) (UNAUDITED) ================================================================================
Six months ended August 31, ---------- 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($2,871) ($2,126) ----------- ----------- Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 288 337 Provision for losses on accounts receivable (457) 83 Increase in subordinated amounts due related parties in exchange for interest 4,735 4,463 Changes in assets and liabilities, net of effects from the purchase of a new automotive aftermarket business: (Increase) decrease in assets: Accounts receivable (195) (1,975) Inventories (758) (577) Other current assets (348) (22) Other assets (100) - Increase (decrease) in liabilities: Accounts payable 36 403 Accrued interest payable 150 55 Accrued state income taxes 45 200 Accrued other liabilities 328 388 ----------- ----------- Total adjustments 3,724 3,355 ----------- ----------- Net cash provided by operating activities 853 1,229 ----------- -----------
See notes to consolidated financial statements 7 8 THE ARLEN CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS ($000's Omitted) (UNAUDITED) (Continued) ================================================================================
Six months ended August 31, ---------- 1995 1994 ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in certificates of deposit (6) - Investment in capital assets (233) (243) Acquisition of new automotive aftermarket business, net of cash acquired (54) - ------------ ---------- Net cash used in investing activities (293) (243) ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on revolving credit line (13,424) (19,345) Proceeds from revolving credit line 13,882 18,711 Principal payments on short-term borrowings (455) (83) Principal payments on long-term borrowings (320) (104) Principal payments on subordinated debt - (57) ------------ ---------- Net cash used by financing activities (317) (878) ------------ ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 243 108 CASH AND CASH EQUIVALENTS, at February 28, 1995 and 1994 1,192 718 ------------ ---------- CASH AND CASH EQUIVALENTS, at August 31, 1995 and 1994 $ 1,435 $ 826 ============ ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the six months ended August 31, 1995 and 1994 for interest $ 262 $ 158 ============ ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: During May 1995, a newly organized, wholly-owned subsidiary of the Registrant acquired certain assets of a business. In acquiring the business, the new subsidiary paid $110,000 and assumed liabilities of $1,789,000. See notes to consolidated financial statements 8 9 THE ARLEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of August 31, 1995 (UNAUDITED) ================================================================================ Note A -- Basis of Presentation The accompanying financial statements have been prepared on the basis that the Registrant will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Although the Registrant has incurred substantial losses for many years, resulting principally from interest charges accrued on its subordinated debt, it has been able to obtain extensions on such subordinated debt and defer payments on certain of its other debt so that cash flow generated from operations has been sufficient to cover necessary expenditures. However, certain of the subordinated notes constituting this subordinated indebtedness, as described in Note 7 of the Notes to Consolidated Financial Statements included in the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1995 (the "1995 10-K"), and a note payable, as described in Note 5 of such Notes to Consolidated Financial Statements, issued by the Registrant to an officer/director, have been pledged to financial institutions by the officer/director as security for personal obligations. The officer/director has been declared in default on a loan from one of the financial institutions and an action was instituted against him. Two Registrant notes totaling approximately $3,639,000, including accrued interest of $1,043,000, had been pledged as collateral for this loan. The financial institution commenced an action against the Registrant for collection of these notes and, in April 1995, a judgment in the amount of $976,000 was entered against the Registrant on certain of such institution's claims. The action is continuing as to an additional $2,120,000 of the institution's claims. If the Registrant is required to satisfy this judgment and repay the notes, the Registrant could face a severe liquidity problem, which may be mitigated by negotiating a workable payout with the financial institution and/or generating sufficient cash flow from its continuing operations to meet the obligations. There is no assurance that the Registrant would be successful in these efforts. The financial statements do not include any adjustments that might be necessary if the Registrant is unable to continue as a going concern. The Registrant has received an examination report from the District Director of the Internal Revenue Service (the "IRS"), asserting that a payment of $6,726,613 is required in order to cure the accumulated funding deficiency of the Registrant's defined benefit pension plan and to pay excise taxes and penalties relating thereto. As indicated below in paragraph (b) of Note E, the Registrant believes that it will be able to achieve a manageable settlement of this deficiency claim with the IRS. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended August 31, 1995 are not necessarily indicative of the results that may be expected for the fiscal year ending February 29, 1996. For further information, reference is made to the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the 1995 10-K. 9 10 THE ARLEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of August 31, 1995 (UNAUDITED) (Continued) ================================================================================ Note B -- Acquisitions The accompanying financial statements reflect the acquisition in May 1995, by a newly-organized, wholly-owned subsidiary of the Registrant, of a business located in Duarte, California, which manufactures and sells metal grille guards, light bars, tubular bumpers and side bars (steps) nationwide to the light truck and sport utility market and performs contract metal-bending work. In acquiring this business, the new subsidiary purchased assets, including fixed assets of $499,000, and assumed certain bank debt and other liabilities, including bank debt of $461,000 maturing at various dates over the next six years and $120,000 of notes payable maturing over the next two years. In addition, the new subsidiary entered into a six-year consulting agreement with the seller of this business, pursuant to which the new subsidiary will pay certain consulting fees depending upon the future earnings of the subsidiary. Certain of the new subsidiary's obligations with respect to this acquisition transaction, including the bank debt of approximately $461,000, are guaranteed by the subsidiary's parent, which itself is a wholly-owned subsidiary of the Registrant. On August 17, 1995, another newly-organized, wholly-owned subsidiary of the Registrant acquired a business, located in Placentia, California, which manufactures and sells molded polyurethane, plastic and fiberglass components for the automotive specialties and other markets. In acquiring this business, the new subsidiary purchased assets, including inventory and fixed assets, and assumed certain liabilities, consisting primarily of trade accounts payable (which may not exceed $136,000) and obligations to certain former owners of the business (which aggregate $371,000, most of which is payable in installments over a four-year period). In addition, the new subsidiary agreed to pay the seller of the business $554,000 in installments over five years and, beginning with calendar year 1996 and continuing for three and one-half years, to pay a former owner 2% of the sales of the business in excess of a specified annual level. The accompanying financial statements do not reflect the acquisition of this business inasmuch as it was concluded near the end of the period covered by such financial statements and its results of operations to the end of such period are immaterial to the financial statements.
August 31, ---------- Note C -- Inventories 1995 1994 ---- ---- Major classes of inventory consist of the following: $3,059 $2,426 Raw material 337 323 Work - in - process 3,033 1,398 Finished goods ------- ------- $6,429 $4,147 ======= =======
Note D -- Long-Term Obligations Included in Long-Term Obligations is the outstanding indebtedness ($2,900,000 at August 31, 1995) of the Registrant's automotive aftermarket subsidiaries under a new loan agreement (the "Loan Agreement") entered into in August 1995 with a banking institution. Under the Loan Agreement, the subsidiaries may borrow, on a revolving credit basis, amounts not to exceed the lesser of $8,500,000 or a borrowing base calculated with reference to the subsidiaries' accounts receivable and inventories. A portion of the borrowing limit may be used for letters of credit. The revolving credit line will terminate on July 31, 1997, unless extended. Borrowings under the revolving line require monthly payments of interest only at an interest rate between the bank's "prime" rate and .75% above such rate (depending upon certain financial tests). The subsidiaries may also elect to 10 11 THE ARLEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of August 31, 1995 (UNAUDITED) (Concluded) ================================================================================ have all or portions of their loan bear interest at the Eurodollar rate plus a spread of between 2% and 2.75% (depending upon certain financial tests); such interest is payable at the end of the applicable interest period. Borrowings under the Loan Agreement are secured by substantially all the assets of the borrower subsidiaries and the stock of two of such subsidiaries, and are guaranteed by the Registrant's subsidiary, Arlen Holdings Corp. The Loan Agreement has various covenants which, among other things, require the borrowers to maintain certain consolidated financial ratios and limit their capital expenditures and payment of dividends. Note E -- Contingencies (a) Environmental Matter A subsidiary of the Registrant has received a general notice of liability indicating that such subsidiary may be a potentially responsible party in connection with contamination at a San Fernando Valley Area 2 Superfund Site. The subsidiary has hired a geological consulting firm to assist in this matter. The ultimate outcome of this matter is uncertain and no adjustments have been made to the accompanying financial statements. Although the EPA has indicated its intention to issue special notice letters to parties that it determines are potentially liable with respect to the Site, the Registrant's subsidiary has not, as of the date hereof, received any such special notice letter. In the opinion of management, the ultimate resolution of this matter will not have a significant impact, if any, on the Registrant's financial statements taken as a whole. (b) Pension Plan The Registrant is the sponsor of a defined benefit pension plan (the "Plan") which was frozen in 1981. Although the actuarial valuation of the Plan as of March 1, 1993 (the latest Plan valuation) indicated that the unfunded actuarial accrued liability was approximately $850,000, the Registrant received an examination report in July 1995 from the IRS asserting that a payment of $6,726,613 is required in order to cure the Plan's accumulated funding deficiency for prior years and pay excise taxes and penalties arising therefrom. Based upon preliminary discussions with the IRS following receipt of this examination report, the Registrant believes that it will be able to obtain a waiver of a substantial portion of the taxes and penalties claimed to be due and to settle the remaining deficiency, through installment payments over a number of years, on a basis not significantly inconsistent with the $850,000 provision already reflected in the accompanying balance sheets. Note F -- Loss Per Share Loss per common share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during each period. Convertible securities that are deemed to be common share equivalents are assumed to have been converted at the beginning of each period. The Registrant's common share equivalents and convertible issues were anti-dilutive at August 31, 1995 and 1994 and, therefore, were not included in the loss per share computations for these periods. The weighted average number of shares used to compute per share amounts were 29,712,000 for the six and three month periods ended August 31, 1995 and 1994, respectively, inclusive of Class B common shares. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 13 THE ARLEN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ Liquidity and Capital Resources At August 31, 1995, the Registrant had a shareholders' deficit of $124,362,000 and its ratio of current assets to current liabilities was 0.92 (having improved from the current ratio of 0.85 at February 28, 1995). The shareholders' deficit at August 31, 1995 takes into account indebtedness to present or former officers and directors of the Registrant, or to persons related to them or their trusts or affiliated entities, in the aggregate amount of $128,963,000. As a result of certain transactions concluded by the Registrant in May 1993 with the then holders of notes evidencing $123,116,000 of this indebtedness (the "Notes") (as described in Item 1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1995 (the "1995 10-K")), the Registrant obtained a significant extension, to July 31, 1997, in the maturity dates applicable to the Notes, though the Registrant was required to provide substantial collateral to secure the Registrant's payment obligations under the Notes. By achieving this result, the Registrant avoided the possibility that the Notes could all have been accelerated in July 1993, and deferred the substantial payment obligations under the Notes until at least July 31, 1997 (subject, however, to (a) the occurrence of an event of default which could accelerate such payment obligations and (b) the mandatory prepayments required upon the occurrence of certain corporate transactions involving the collateral). While the transactions involving the extension and collateralization of the Notes are believed to have eased the Registrant's liquidity needs over the four years following such transactions, the settlement of certain obligations (the "Current Obligations") owed to the Registrant's Chairman of the Board (as described in Item 1 of the 1995 10-K) has added additional periodic payment obligations to those already borne by the Registrant and its subsidiaries. Such payment obligations are specified in Item 1 of the 1995 10-K. Nevertheless, based upon the experience of the Registrant's prior arrangements with certain of its creditors and management's expectations of the cash flow to be available from the Registrant's operating subsidiaries, the Registrant believes that it will be able to meet the expenses of current operations. Further information with respect to the payment obligations of the Registrant and its operating subsidiaries is provided in Notes 5, 6, and 7 of the Notes to Consolidated Financial Statements included in the 1995 10-K; however, it should be noted that the revolving credit line referred to in such Note 5 which was available to the Registrant's subsidiaries, Grant Products, Inc. and G.T. Styling, Inc., at February 28, 1995 has been replaced by the new credit facilities with Sumitomo Bank of California which are described in Note D of the Notes to Consolidated Financial Statements included in this Report and in Item 2 of Part II of this Report. These new credit facilities are believed to be sufficient to meet the financing needs of the Registrant's automotive aftermarket subsidiaries for the next two years. If, as a result of insufficient cash flow or otherwise, the Registrant should be unable to meet its payment obligations under the Current Obligations, such a default would also constitute an event of default under the Notes, permitting the holders of the Notes to accelerate the indebtedness thereunder and to foreclose upon the outstanding shares of common stock of the Registrant's subsidiaries, Arlen Holdings Corp., Arlen Automotive, Inc. and Grant Products, Inc., held as collateral for the Notes, thereby effectively depriving the Registrant of substantially all of its operating assets, and, if such foreclosure does not produce sufficient proceeds to pay off the indebtedness in full as the Registrant believes it would not, the Registrant would remain potentially liable for the amount of any deficiency. 13 14 THE ARLEN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) ================================================================================ Liquidity and Capital Resources (Continued) In addition to the potential liquidity problems which could result from a default as described in the preceding paragraph, the Registrant acknowledges that, if the Registrant is unable to negotiate a manageable settlement with Morgan Guaranty Trust Company of New York, the pledgee of certain promissory notes of the Registrant and the holder of a judgment against the Registrant (as discussed in Item 3 of the 1995 10-K and in Item 1 of Part II of this Report), the Registrant may face a severe liquidity crisis and be unable to continue as a going concern. Similarly, the Registrant must resolve the claim of the Internal Revenue Service with respect to the accumulated funding deficiency relating to the Registrant's retirement plan (see Item 1 of Part II of this Report). Results of Operations Sales for the six and three months ended August 31, 1995 increased by 12% and 19% over the corresponding period of the prior year. The increase is the result of additional sales from a newly acquired subsidiary, enhanced by respective increases of 11% and 18% in sales of the existing subsidiaries. The sales increases reflect a continuation of improving market conditions in the automotive aftermarket industry. The sales of the Registrant's subsidiary serving the construction industry decreased by approximately 14% and 9% for the six and three months ended August 31, 1995 from the corresponding periods of the prior year. The primary reason for the decrease is the volatility of the construction industry. The increase in cost of sales was primarily a function of the higher sales, with the gross profit margins of the operating subsidiaries as a group relatively constant for the six and three months ended August 31, 1995 when compared with such margins for the comparable periods of the prior year. The gross margins of the construction subsidiary for the current three and six month periods decreased by 19% and 6%, respectively, from the periods of the prior year (reflecting unfavorable bid terms on certain contracts). The gross margins of the automotive subsidiaries decreased by 3% for the six and three months ended August 31, 1995 from the comparable periods of the prior year. This decline is attributable to increased material prices and increased costs associated with the newly acquired subsidiary. Corporate, selling, general and administrative expenses increased by 10% and 9% for the six and three months ended August 31, 1995 over the corresponding periods of the prior year. The increase is made up of 15% and 20% increases at the automotive aftermarket subsidiaries due to increased selling expenses related to increased sales and increased administrative expenses necessitated by a sustained increase in the level of sales and the acquisition of the new subsidiary. These increases are partially offset by a 26% and 50% decrease at the construction subsidiary associated with the decline in sales. Operating income as a percentage of sales declined by 2% and 3% for the six and three months ended August 31, 1995 over the corresponding period of the prior year, primarily due to increased administrative expenses at the automotive aftermarket subsidiaries necessitated by the sustained increase in the level of sales. Interest expense increased by 9% and 10% for the six and three months ended August 31, 1995 from the corresponding periods of the prior year. The increase is primarily the result of the compounding of interest on related party obligations and additional interest expense from the newly acquired subsidiary. 14 15 THE ARLEN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded) ================================================================================ Results of Operations The net loss for the six and three months ended August 31, 1995 increased by 35% and 38% from the corresponding periods of the prior year primarily because of the increase in interest expense. NOTE: For the reasons indicated in Note B of the Notes to Consolidated Financial Statements included in this Report, neither the accompanying financial statements nor this management's discussion of the results of operations of the Registrant for the three and six months ended August 31, 1995 reflect the operations of the Registrant's newest subsidiary, which was acquired on August 17, 1995. 15 16 PART II - OTHER INFORMATION 16 17 Item 1. Legal Proceedings. (a) In September 1995, Morgan Guaranty Trust Company of New York ("Morgan") commenced an action in the Supreme Court of the State of New York, County of New York, against the Registrant, its wholly-owned subsidiary, Arlen Holdings Corp., and the holders of certain outstanding promissory notes issued by the Registrant (the "Notes", as such term is defined in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this Report (the "MD&A")). The defendant holders of the Notes include the Registrant's Chairman of the Board, Arthur G. Cohen, as well as persons related to a deceased former director and officer of the Registrant and trusts for their benefit or entities with which they are affiliated. The action seeks to void the 1993 pledge of the outstanding capital stock of the Registrant's subsidiaries, Arlen Automotive, Inc. (now known as Arlen Holdings Corp.) and Grant Products, Inc., to the holders of the Notes as security for the repayment of the Notes. Such stock pledge took place in connection with the granting to the Registrant of a significant extension in the maturity dates of the Notes, as discussed above in the MD&A. According to Morgan's complaint, if the stock pledge can be set aside, the pledged stock will be available to satisfy Morgan's claims as a creditor of the Registrant. As indicated above in the MD&A, Morgan had previously instituted an action against the Registrant, in which a judgment was entered in April 1995 against the Registrant in the amount of $975,952.73; such action is continuing with respect to Morgan's claim for an additional $2,119,861.83 (plus interest). The Registrant believes that the new action commenced by Morgan is without merit and intends to vigorously defend against Morgan's claims. Reference is made to Items 1 and 3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1995 for further information regarding the Notes, the Registrant's pledge of the stock of Arlen Holdings Corp. and Grant Products, Inc. and the previous action commenced by Morgan against the Registrant. (b) In July 1995, the Registrant received from the District Director of the Internal Revenue Service (the "IRS") an examination report with respect to the Registrant's defined benefit pension plan (the "Plan"). In such report, the IRS has asserted that a payment by the Registrant of $6,726,613 is required in order to cure the Plan's accumulated funding deficiency for prior years and pay excise taxes and penalties arising therefrom. Based upon preliminary discussions with the IRS following receipt of the examination report, the Registrant believes that it will be able to obtain a waiver of a substantial portion of the taxes and penalties claimed to be due and to settle the remaining deficiency, through installment payments over a number of years, on a basis not substantially inconsistent with the $850,000 provision already reflected in the balance sheets included in this Report. Item 2. Changes in Securities. As of August 10, 1995, the Registrant's wholly-owned subsidiary, Arlen Automotive, Inc. ("Automotive"), together with Grant Products, Inc. ("Grant") and G.T. Styling, Inc. ("GTS"), both of which are wholly-owned subsidiaries of Automotive, entered into a Commercial Loan Agreement (the "Loan Agreement") with Sumitomo Bank of California (the "Lender"). The Loan Agreement permits Grant and GTS (collectively, with Automotive, the "Borrowers") to borrow up to a combined maximum of $8,500,000 on a revolving credit basis, with the amount available for borrowing being limited according to the respective borrowing bases of Grant and GTS; such borrowing bases are based upon 17 18 the inventory and accounts receivable levels of Grant and GTS. A part of the revolving credit line may be used for letters of credit. The revolving credit facility will terminate on July 31, 1997, at which time all outstanding borrowings must be repaid, unless the facility shall be extended. The revolving credit loans bear interest at an annual rate which will vary between the Lender's "prime" rate and a rate which can be no higher than 0.75% above such "prime" rate, depending upon the ratio of the consolidated Total Liabilities of Grant and GTS to the consolidated Tangible Net Worth of Grant and GTS. The Borrowers may also elect to have all or portions of their revolving credit loans bear interest at the Eurodollar Rate plus a spread, which can vary between 2.00% and 2.75%. Total Liabilities, Tangible Net Worth and Eurodollar Rate are defined in the Loan Agreement. Interest is payable monthly in arrears (or, in the case of borrowings bearing interest at the Eurodollar Rate, at the end of the applicable interest period). The revolving credit facility replaces, and has been used to repay, the revolving credit facility previously provided to Grant and GTS by Shawmut Capital Corporation (formerly Barclays Business Credit, Inc.); future borrowings under the new line will be used for working capital purposes. In addition to the revolving credit facility, the Loan Agreement provides for additional loans to the Borrowers of up to $3,000,000 on a non-revolving basis to finance stock or asset acquisitions during the period prior to August 1, 1996. Any such acquisition loans will bear interest at the same choice of rates as applies to the revolving credit borrowings, plus an additional spread of 0.25%. On July 31, 1996, all such borrowings will become repayable as a term loan, with monthly installments payable over the four-year period ending July 31, 2000. The Borrowers may not utilize this acquisition line until certain conditions have been satisfied. All borrowings from the Lender under the Loan Agreement are collateralized by security interests in substantially all the assets of Grant and GTS. In addition, the repayment obligations of the Borrowers are secured by a guaranty in favor of the Lender from Arlen Holdings Corp., the direct subsidiary of the Registrant which is the sole stockholder of Automotive, and the pledge by Automotive to the Lender of the outstanding shares of capital stock of Grant and GTS (with such pledge of the Grant stock not taking effect until such stock is released by the bank which currently holds such stock). The Loan Agreement imposes certain affirmative and negative covenants upon the Borrowers. Such covenants, among other things, require Grant and GTS (on a consolidated basis) to maintain certain specified financial ratios. The Loan Agreement also prohibits dividends by the Borrowers exceeding 20% of net profits after taxes on an annual basis. A change in the ownership of the stock, or in the office of the President, of any of the Borrowers will constitute an event of default entitling the Lender to declare the indebtedness outstanding under the Loan Agreement immediately due and payable. The foregoing summary of the Loan Agreement is qualified in its entirety by reference to the Loan Agreement and the other documents relating thereto, copies of which are filed as Exhibits to this Report. 18 19 Item 6. Exhibits and Reports on Form 8-K. (b) Exhibits:
Exhibit Number Description ------ ----------- 4.9 Commercial Loan Agreement dated August 10, 1995 among Sumitomo Bank of California ("Sumitomo"), as lender, and Arlen Automotive, Inc. (Automotive"), Grant Products, Inc. ("Grant") and G.T. Styling, Inc. ("GTS"), as borrowers, including Schedule 1 and Exhibit D thereto. 4.9.1 Revolving Line Note dated August 10, 1995 in the principal amount of $8,500,000, issued by Automotive, Grant and GTS to Sumitomo. 4.9.2 Non-Revolving Line Note dated August 10, 1995 in the principal amount of $3,000,000, issued by Automotive, Grant and GTS to Sumitomo. 4.9.3 Security Agreement dated August 10, 1995 from Automotive, Grant and GTS in favor of Sumitomo. 4.9.4 Pledge Agreement dated August 10, 1995 from Automotive in favor of Sumitomo. 4.9.5 Guaranty dated August 10, 1995 from Arlen Holdings Corp. in favor of Sumitomo. 10.11 Consulting Agreement dated as of August 1, 1995 between Grant and DAT Consulting, LLC. 10.12 Consulting Agreement dated as of August 1, 1995 between GTS and DAT Consulting, LLC. 10.13 Consulting Agreement dated as of October 1, 1995 between Grizzly Products, Inc. and DAT Consulting, LLC. 10.14 Consulting Agreement dated as of October 1, 1995 between A & A Specialties Corp. and DAT Consulting, LLC.
(b) Reports on Form 8-K. None. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. THE ARLEN CORPORATION (Registrant) By: /s/ Allan J. Marrus --------------------------------------- Allan J. Marrus, President Date: October 18, 1995 By: /s/ David S. Chaiken --------------------------------------- David S. Chaiken, Treasurer Date: October 18, 1995 20 21 EXHIBIT INDEX
Exhibit ------- Page Number Description No. ------ ----------- --- 4.9 Commercial Loan Agreement dated August 10, 1995 among 22 Sumitomo Bank of California ("Sumitomo"), as lender, and Arlen Automotive, Inc. (Automotive"), Grant Products, Inc. ("Grant") and G.T. Styling, Inc. ("GTS"), as borrowers, including Schedule 1 and Exhibit D thereto. 4.9.1 Revolving Line Note dated August 10, 1995 in the 72 principal amount of $8,500,000, issued by Automotive, Grant and GTS to Sumitomo. 4.9.2 Non-Revolving Line Note dated August 10, 1995 in the 76 principal amount of $3,000,000, issued by Automotive, Grant and GTS to Sumitomo. 4.9.3 Security Agreement dated August 10, 1995 from 80 Automotive, Grant and GTS in favor of Sumitomo. 4.9.4 Pledge Agreement dated August 10, 1995 from Automotive 94 in favor of Sumitomo. 4.9.5 Guaranty dated August 10, 1995 from Arlen 107 Holdings Corp. in favor of Sumitomo. 10.11 Consulting Agreement dated as of August 1, 1995 119 between Grant and DAT Consulting, LLC. 10.12 Consulting Agreement dated as of August 1, 1995 between 142 GTS and DAT Consulting, LLC. 10.13 Consulting Agreement dated as of October 1, 1995 165 between Grizzly Products, Inc. and DAT Consulting, LLC. 10.14 Consulting Agreement dated as of October 1, 1995 188 between A & A Specialties Corp. and DAT Consulting, LLC. 27 Financial Data Schedule
21 EX-4.9 2 COMMERCIAL LOAN AGREEMENT 1 EXHIBIT 4.9 22 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMERCIAL LOAN AGREEMENT BY SUMITOMO BANK OF CALIFORNIA, as Bank AND ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC., and G.T. STYLING, INC., as Borrowers Dated August 10, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 3 TABLE OF CONTENTS
Page ---- 1. CREDIT FACILITIES, AMOUNT AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (a) Accounts Receivable/Inventory Revolving Line of Credit Amount . . . . . . . . . . . . . . 1 (b) Collection of Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (c) Revolving Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (d) Subline Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (e) Minimum Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (f) Maximum Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (g) Availability Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (h) Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (i) Repayment Terms/Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 9 (j) Letter of Credit Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.2 Non-Revolving Acquisition Line of Credit/Term Out Option . . . . . . . . . . . . . . . . . . . . . 10 (a) Non-Revolving Line of Credit Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (b) Non-Revolving Line of Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (c) Availability Period/Non Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . 11 (d) Interest Rate/Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . 11 (e) Repayment Terms/Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . 11 2. FEES, EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (a) Unused Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 All Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4. DISBURSEMENTS, PAYMENTS AND COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.1 Request for Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.2 Disbursements and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.3 Telephone Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.4 Direct Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.5 Banking Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.7 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.8 Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.9 Interest on Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.10 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.11 Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.12 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.1 Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (a) Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
24 4 (b) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (c) Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (d) Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (e) Evidence of Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (f) Landlord's/Mortgagee Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (h) Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (i) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (j) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (k) Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (l) Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (m) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (n) Other Required Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.2 Conditions to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.1 Organization of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.3 Enforceable Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.4 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.7 Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.8 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.9 Permits, Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.10 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.11 Income Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.12 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.13 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (a) Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (b) Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.2 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.3 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.4 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.5 Total Liabilities to Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.6 Interest Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.7 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.8 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.9 Other Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.10 Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.11 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.12 Dividends/Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.13 Loans to Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.14 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.15 Notices to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.16 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.17 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.19 Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
25 5 7.20 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.21 Perfection of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.22 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (a) Insurance Covering Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (b) General Business Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (c) Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.24 Operating/Business Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.25 Additional Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.26 No Consumer Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.27 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.28 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.29 Arlen Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.30 Appointment of Bank as Attorney in Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (a) Failure to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (b) Non-Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (c) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (d) Lien Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (e) False Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (f) Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (g) Receivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (h) Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (i) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (j) Government Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (k) Default under Guaranty or Subordination Agreement . . . . . . . . . . . . . . . . . . . . 30 (l) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (m) Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (n) ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.3 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.1 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.2 California Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.4 Severability; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.5 Multiple Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.11 Hazardous Waste Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.12 Joint Borrower Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Schedule 1 Joint Borrowing Provisions 26 6 Schedule 6.7 Lawsuits Schedule 6.8 Permitted Encumbrances Exhibit A - Revolving Line Note Exhibit B - Non Revolving Line Note Exhibit C - Term Note Exhibit D - Collateral Exhibit E - Request for Credit Exhibit F - Borrowing Base Certificate Exhibit G - Subordination Agreement 27 7 COMMERCIAL LOAN AGREEMENT This Commercial Loan Agreement dated as of August 10, 1995 ("Agreement") is made between Sumitomo Bank of California ("Bank") and Arlen Automotive, Inc., a Delaware corporation ("Arlen"), Grant Products, Inc. a Delaware corporation ("Grant"), and G.T. Styling, Inc., a California corporation ("G.T.") (each a "Borrower", collectively, the "Borrowers"). 1. CREDIT FACILITIES, AMOUNT AND TERMS. Bank agrees to make available to Borrowers the following lines of credit and/or credit accommodations on the following terms, covenants and conditions: 1.1 Revolving Line of Credit. (a) Accounts Receivable/Inventory Revolving Line of Credit Amount. During the Availability Period (defined below), so long as no Event of Default or Potential Event of Default (in each case as defined below), Bank will, on a revolving basis, make advances (each, an "Advance") to Grant and/or G.T. under their respective sublines, which may not at any time exceed, in the aggregate outstanding, the lesser of Eight Million Five Hundred Thousand and No/100 Dollars ($8,500,000) (the "Commitment") or the Borrowing Base. Borrowers' obligation to repay advances under this revolving line of credit (the "Revolving Line of Credit") is evidenced by a promissory note, substantially in the form of Exhibit A attached hereto (the "Revolving Line Note"). (i) "Borrowing Base" shall mean the sum of (A) eighty percent (80%) of the net face amount of Grant's Eligible Accounts, after deduction of such reserves as Bank deems necessary and proper, plus fifteen percent (15%) of Grant's Eligible Raw Materials Inventory, after deduction of such reserves as Bank deems necessary and proper, plus thirty-five percent (35%) of Grant's Eligible Finished Goods Inventory but such advances combined shall not, at any time, exceed the Commitment (the "Grant Subline") and (B) seventy percent (70%) of G.T.'s Eligible Accounts, after deduction of such reserves as Bank deems necessary and proper, plus forty percent (40%) of G.T.'s Eligible Inventory, after deduction of such reserves as Bank deems necessary and proper, but such advances combined shall not, at any time, exceed the Commitment (the "G.T. Subline"). (ii) "Accounts Receivable" shall mean open accounts arising in the ordinary course of a Borrower's 28 8 business from services performed or goods sold by such Borrower. (iii) "Account Debtor" shall mean the obligor on any Accounts Receivable. (iv) "Eligible Accounts" shall mean Accounts Receivable, excluding the following: (A) Accounts Receivable (excluding Dating Term Accounts) which remain uncollected more than ninety (90) days from the date they are first invoiced. (B) Dating Term Accounts which remain uncollected more than thirty (30) days from the date they are first due. "Dating Term Accounts" shall mean Accounts Receivable stated to be due more than sixty (60) but not more than one hundred twenty (120) days after the original invoice date. (C) Accounts Receivable due from an Account Debtor which suspends business, suffers a business failure or the termination of its existence, or makes an assignment for the benefit of creditors, or as to which a dissolution, insolvency or bankruptcy proceeding has been commenced, or as to whose property a trustee, receiver or conservator has been appointed. (D) Accounts Receivable due from an Account Debtor affiliated with a Borrower, such as a stockholder, owner, parent, subsidiary, officer, director, agent or employee of Borrower. (E) Accounts Receivable with respect to which payment is or may be contingent or conditional. (F) Accounts Receivable due from an Account Debtor who is not a resident or citizen of, located in, or subject to service of process in the United States of America or Canada. (G) Accounts Receivable against which is asserted a defense, counterclaim, discount or setoff. (H) Accounts Receivable due from an Account Debtor which is any national, federal, state, county or municipal government, including, without limitation, any instrumentality, division, agency, 29 9 body or department thereof, unless (A) there has been compliance with the federal Assignment of Claims Act or any similar state or local law which may apply and (B) Bank deems such Accounts Receivable to be Eligible Accounts in the exercise of its sole discretion. (I) Accounts Receivable commonly known as "bill and hold" or subject to any repurchase or return agreement, or which relate to goods on consignment or on approval or any similar arrangement. (J) Accounts Receivable relating to an Account Debtor with respect to which twenty-five percent (25%) or more of the total Accounts Receivable owing by such Account Debtor remain uncollected more than ninety (90) days from the date they are first invoiced. (K) Accounts Receivable due from an Account Debtor which, in the aggregate, exceed twenty-five percent (25%) of the aggregate amount of all Eligible Accounts, except that Accounts Receivable due from Keystone Automotive, Autozone and Pep Boys shall each be subject to a concentration limit not to exceed thirty percent (30%). (L) Accounts Receivable as to which Borrower is or may become liable to an Account Debtor for services rendered or sales made or for any other reason, except to the extent that such Accounts Receivable exceed the amount of such liability. (M) Accounts Receivable which are not owned by Borrower or are not free of all liens, encumbrances, charges, rights or interests of any kind, except in favor of Bank. (N) Accounts Receivable which are evidenced by chattel paper or an instrument of any kind. (O) Accounts Receivable which are not evidenced by an invoice or other documentation in form acceptable to Bank. (P) Accounts Receivable which are otherwise unacceptable to Bank. (v) "Eligible Inventory" shall mean those items of Inventory consisting of raw materials, and finished goods which are in good condition and currently saleable in the ordinary course of a Borrower's business 30 10 and are not otherwise unacceptable to Bank in its sole discretion. Eligible Inventory shall not include work in process, shipping and packing materials, purchased components owned by G.T. and supplies. Such Inventory shall not be subject to any other lien or claim, shall not have been consigned or sold to any person (nor have been purchased by a Borrower) as part of any bulk sale unless there was compliance with all applicable bulk sale or transfer laws. Such Inventory shall be located at such locations as are acceptable to Bank and shall, at all times, be subject to and covered by, Bank's perfected security interest. "Eligible Raw Materials Inventory" shall mean and be limited to raw materials which otherwise satisfy the requirements for Eligible Inventory, and "Eligible Finished Goods Inventory" shall mean and be limited to finished goods which otherwise satisfy the requirements for Eligible Inventory. (vi) "Inventory" shall mean all inventory (as that term is defined in the Commercial Code of the State of California) wherever located, which is or may at any time be held for sale or lease, furnished under any contract of service or held as raw materials, work in process, supplies or materials used or consumed in a Borrower's business or which are or might be used in connection with the manufacturing, shipping, advertising or selling or finishing of such goods, merchandise and other personal property and all documents of title or documents representing the same, and all such property, the sale or other disposition of which has given rise to Accounts Receivable and which has been returned to or repossessed or stopped in transit by a Borrower. (b) Collection of Accounts Receivable. Borrowers shall have the privilege, subject to revocation at the sole discretion of Bank, to collect, at Borrowers' expense, the payments due on Accounts Receivable upon the express condition that all such collections shall be received by Borrowers in trust for Bank. Upon demand by Bank, whether before or after an Event of Default, Borrowers shall promptly deliver to Bank, at the location specified in this Agreement, in kind, all remittances received by Borrowers on Accounts Receivable, or if sales are made for cash, the identical checks, cash, or other form of payment. The receipt of any check or other item of payment by Bank shall not be considered a payment in reduction of the Loan Balance until such check or other item of payment is honored and finally paid. At any time, Bank in its sole discretion may, but is not obligated to, notify any Account Debtor to make payment directly to Bank, and exercise any and all of Borrowers' rights regarding the Account Receivable or the Account Debtor. 31 11 (c) Revolving Line. This is a revolving line of credit. During the Availability Period, Borrowers may repay principal amounts and Grant and G.T. may reborrow them. (d) Subline Facility. A revolving line of credit subline facility for letters of credit is available under the Revolving Line of Credit, as set forth in Section 1.1(j) hereof. The aggregate outstanding face amount of letters of credit may not exceed One Million Dollars ($1,000,000). (e) Minimum Advance. Each advance must be for at least One Hundred Thousand Dollars ($100,000.00), or for the amount of the remaining available Revolving Line of Credit, if less. (f) Maximum Loan Balance. Borrowers agree not to permit the outstanding principal balance of the Revolving Line of Credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed (such sum is the "Loan Balance"), to exceed the lesser of the Commitment or the Borrowing Base. (g) Availability Period. The period under which Borrowers may draw on the Revolving Line of Credit ("Availability Period") is between the date of this Agreement and July 31, 1997 (the "Maturity Date") unless Borrowers are in default, in which event Bank need not make any advances. (h) Interest Rate. (i) Unless the Agent (defined below) on behalf of Borrowers elects an Optional Interest Rate as described below, the interest rate is Bank's Prime Rate in effect from time to time plus the Applicable Rate (as defined below), per annum. (A) The "Prime Rate" equals the rate of interest set from time to time by Bank at its head office in San Francisco, California as its Prime Rate. The Prime Rate is determined by Bank as a means of pricing credit extensions to some customers and is neither tied to any external rate of interest or index nor is it necessarily the lowest rate of interest charged by Bank at any given time for any particular class of customers or credit extensions. Any changes in the interest rate resulting from a change in the Prime Rate shall take effect without notice on the date specified at the time the Prime Rate is set. 32 12 (B) The "Applicable Rate" shall be determined based upon Grant's and G.T.'s consolidated Total Liabilities to Tangible Net Worth ratio as follows: Applicable Rate Total Debt to Tangible Net Worth --------------- -------------------------------- 0.75% greater than or equal to 1.75:1.00 0.50% 1.25:1.00 - 1.74:1.00 0.25% 0.65:1.00 - 1.24:1.00 0.00% less than 0.65:1.00 and shall be set on the first day of each quarter based upon Borrowers' most recent monthly financial statement. (ii) Optional Interest Rate. Instead of the interest rate based on Bank's Prime Rate, Agent on behalf of Borrowers may elect to have all or portions of the Revolving Line of Credit during the Availability Period bear interest at the rate described in Section 1.1(h)(iii) below (the "Optional Interest Rate") during an interest period agreed to by the Bank and Agent on behalf of Borrowers. Each interest rate is a rate per annum. Interest will be paid on the last day of each interest period and, if the interest period is longer than thirty (30) days, then on the first day of each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Prime Rate, unless Agent on behalf of Borrowers has again designated the Optional Interest Rate for that portion. (iii) Eurodollar Rate/Rate Plus Disclosed Spread. Agent on behalf of Borrowers may elect to have all or portions of the principal balance of the Revolving Line of Credit bear interest at the Eurodollar Rate plus the Disclosed Spread (each an "Eurodollar Rate Portion"). The "Disclosed Spread" shall be determined based upon Grant's and G.T.'s consolidated Total Liabilities to Tangible Net Worth as follows: Disclosed Spread Total Debt to Tangible Net Worth ---------------- -------------------------------- 2.75% greater than or equal to 1.75:1.00 2.50% 1.25:1.00 - 1.74:1.00 2.25% 0.65:1.00 - 1.24:1.00 2.00% less than 0.65:1:00 and shall be set on the first day of each quarter based upon Borrowers' most recent monthly financial statement. Designation of a Eurodollar Rate Portion is subject to the following requirements: 33 13 (A) Each request for an Advance hereunder to bear interest at the Optional Interest Rate must be received by Bank by 9:00 a.m. (Los Angeles time) at least two (2) Banking Days before the first day of the applicable interest period. (B) The interest period during which the Optional Interest Rate will be in effect will be a period of either 30, 60, or 90 days, as selected by Borrowers, with the consent of Bank. The last day of the interest period will be determined by Bank using the practices of the Eurodollar inter- bank market. (C) Unless the Optional Interest Rate is not available to Borrowers under the provisions of this Agreement, Agent on behalf of Borrowers shall at times elect the Optional Interest Rate for an amount equal to the lesser of the Loan Balance or One Million and no/100 Dollars ($1,000,000.00), and in any case in integral multiples of Five Hundred Thousand and no/100 Dollars ($500,000.00). Each incremental Eurodollar Rate Portion will be for an amount not less than Five Hundred Thousand and No/100 Dollars ($500,000) ("Eurodollar Rate Loan"). (D) The "Eurodollar Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by Bank as of the first day of interest period.) Eurodollar Rate = LIBOR Rate ---------- (1.00 - Reserve Percentage) Where, (1) "LIBOR Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which Bank's Branch in London, England, would offer U.S. dollar deposits for the applicable interest period to other major banks in the Eurodollar inter-bank market. (2) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The per- 34 14 centage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (3) Borrowers may not elect the Optional Interest Rate with respect to any portion of the principal balance of the Revolving Line of Credit which is scheduled to be repaid before the last day of the applicable interest period. (4) No portion of the principal balance of the Revolving Line of Credit already bearing interest at the Optional Interest Rate may be converted to a different rate during its interest period. (E) Each prepayment of a Eurodollar Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which: (1) the additional interest which would have been payable on the amount prepaid had it not been paid until the last day of the interest period, exceeds (2) the interest which would have been recoverable by Bank by placing the amount prepaid on deposit in the Eurodollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion. (3) Bank will have no obligation to accept an election of Eurodollar Rate Portion if any of the following described events has occurred and is continuing: (x) Dollar deposits in the principal amount, and for periods equal to the interest period, of a Eurodollar Rate Portion are not available in the Eurodollar interbank market; or 35 15 (y) the Eurodollar Rate does not accurately reflect the cost of Eurodollar Rate portion. (i) Repayment Terms/Revolving Line of Credit. (i) Borrowers will pay interest in arrears commencing on September 1, 1995, and then on the first day of each month thereafter until payment in full of all amounts outstanding under the Revolving Line of Credit. (ii) Borrowers will repay in full, all principal, interest and other charges outstanding under the Revolving Line of Credit no later than the Maturity Date. (iii) Any amount bearing interest at an Optional Interest Rate may be repaid at the end of the applicable interest period. (iv) Subject to provisions contained elsewhere herein, Borrowers may prepay the Revolving Line of Credit in full or in part at any time without penalty or premium, except for the prepayment fee with respect to the prepayment of Eurodollar Rate Portion, if applicable, as set forth in Section 1.1(h)(iii)(E). The prepayment will be applied first to interest and charges and then to the most remote installment of principal due under this Agreement. (j) Letter of Credit Line. This Revolving Line of Credit may be used for financing: (1) commercial letters of credit with a maximum maturity of 365 days but not to extend beyond the Maturity Date, and each such commercial letter of credit will require drafts payable up to 90 days after sight; or (2) standby letters of credit with a maximum maturity of 365 days but not to extend beyond the Maturity Date. (i) The amount of outstanding letters of credit, including amounts drawn on letters of credit and not yet reimbursed, may not exceed at any one time One Million Dollars ($1,000,000). (ii) Any sum drawn under a letter of credit shall be added to the principal amount outstanding under this Agreement. The amount will bear interest at the rate set forth in Section 1.1(h)(i) and be due as described elsewhere in this Agreement. (iii) In the event any letters of credit are outstanding on the Maturity Date, or in the event an Event 36 16 of Default shall have occurred, Borrowers shall immediately prepay such letters of credit and deposit with Bank, as cash collateral for the obligations of Borrowers under such letters of credit (and Borrowers hereby grant to Bank a security interest in such cash collateral), an amount equal to the face amount of all outstanding letters of credit, to be applied to repay draws under such letters of credit as and when made. (iv) The issuance of any letter of credit or any amendment to a letter of credit is subject to Bank's written approval and must be in form and content satisfactory to Bank and in favor of a beneficiary acceptable to Bank. (v) Borrowers will sign Bank's form Application and Security Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit. (vi) Borrowers agree that Bank may automatically charge the Account (defined below) for applicable fees, discounts, and other charges relating to any letters of credit. (vii)Borrowers will pay any issuance and/or other fees that Bank notifies Borrowers will be charged for issuing and processing letters of credit for Borrowers. 1.2 Non-Revolving Acquisition Line of Credit/Term Out Option. (a) Non-Revolving Line of Credit Amount. During the Non-Revolving Line Availability Period, Bank will, on a non-revolving basis, make advances to Borrowers, which may not at any time exceed in the aggregate principal amount of Three Million and No/100 Dollars ($3,000,000.00) (the "Non-Revolving Commitment"). This is a "Non-Revolving Line of Credit" with a term repayment option to be used by Borrowers. Any amount borrowed, even if repaid before the end of the Non-Revolving Line of Credit Availability Period, permanently reduces the remaining available Non-Revolving Line of Credit and such amounts may not be reborrowed. Borrowers' obligation to repay advances under the Non-Revolving Line of Credit shall be evidenced by a promissory note, substantially in the form of Exhibit B attached hereto (the "Non-Revolving Line Note"). (b) Non-Revolving Line of Credit Advances. Each advance under the Non-Revolving Line of Credit shall be used solely to fund stock or asset purchases or acquisitions, each subject to review and approval by Bank on a case by case 37 17 basis as permitted by the terms of this Agreement. All stock or assets acquired with the proceeds of such advances shall be free and clear of any security interests, liens, encumbrances of rights of others except the security interests of Bank under any security agreements required under this Agreement unless otherwise approved by Bank. Each request for an advance under the Non-Revolving Line of Credit shall describe in adequate detail the stock or assets proposed to be purchased or acquired by Borrowers and shall be accompanied by a copy of the purchase and sale agreement or other documentary evidence acceptable to Bank for the stock and/or assets to be purchased with the proceeds of the advance. Bank reserves the right to withhold approval of any requested advance in the exercise of its sole discretion, which it shall exercise without unreasonable delay. Each advance under the Non-Revolving Line of Credit must be for at least Fifty Thousand and No/100 Dollars ($50,000.00), or for the remaining Non-Revolving Line of Credit, if less. (c) Availability Period/Non Revolving Line of Credit. The Non-Revolving Line of Credit shall be available upon ("Non-Revolving Line Availability Period") the later of (i) the date on which Bank completes a satisfactory field audit of Grizzly Products, Inc. ("Grizzly") or (ii) the date on which Grizzly becomes a Borrower under this Agreement, and shall terminate on July 31, 1996 (the "Conversion Date") unless Borrowers are in default hereunder in which event Bank need not make any advances under the Non-Revolving Line of Credit. (d) Interest Rate/Non-Revolving Line of Credit. Each advance outstanding under the Non-Revolving Line of Credit shall bear interest at a rate per annum equal to Bank's Prime Rate in effect from time to time plus the Applicable Rate or at an Optional Interest Rate, each as set forth in Section 1.1(h), plus, in each case, one-quarter of one percent (0.25%). (e) Repayment Terms/Non-Revolving Line of Credit. (i) Borrowers will pay interest commencing on September 1, 1995, and then on the first day of each month thereafter, whether under the Non-Revolving Line Note or the Term Note (defined below). (ii) On the Conversion Date (which may be extended, in the exercise of Bank's discretion, for the length of any applicable cure period permitted hereunder), so long as Borrowers are in compliance with all terms and conditions contained herein and in any other documents and agreements executed in connection herewith, Bank will convert the then outstanding amount of the Non-Revolving Line of Credit to a term loan. Borrowers shall execute and deliver to Bank a Term Note substantially in the form 38 18 of Exhibit C attached hereto and made a part hereof (the "Term Note"), payable to Bank or its order to evidence such conversion of the Non-Revolving Line of Credit to a term loan (the "Term Loan"). (iii) As will be further set forth in the Term Note, Borrowers will repay the principal amount outstanding on the Conversion Date in forty-seven (47) successive equal monthly installments commencing on August 31, 1996, and then on the forty-eighth (48th) and final installment in an amount equal to the then remaining principal balance of the Term Note plus accrued and unpaid interest and other charges thereon due and payable on July 31, 2000. (iv) Borrowers may prepay the Non-Revolving Line of Credit Note or the Term Note, as the case may be, in full or in part at anytime without penalty or premium, except that any such partial prepayment shall be (A) an integral multiple of $50,000, (B) in an amount of not less than $100,000, and (C) any prepayment of an Offshore Rate Portion shall include the fees as set forth in Section 1.1(h)(iii)(E). Any such prepayment will be applied first to the interest and charges then to the most remote installment of principal due under the Non-Revolving Line of Credit Note or the Term Note, as applicable. 2. FEES, EXPENSES AND DEPOSITS. 2.1 Fees. (a) Unused Commitment Fee. (i) Revolving Line of Credit. Borrowers agree to pay an unused commitment fee equal to one-quarter of one percent (0.25%) times the average daily difference between the Revolving Line of Credit Commitment and the principal balance evidenced by the Revolving Line Note. This fee is payable in arrears and is due commencing on September 30, 1995 and on the first Banking Day following the last day of each quarter until the expiration of the Availability Period. (ii) Non-Revolving Line of Credit. Borrowers agree to pay an unused commitment fee equal to one-quarter of one percent (0.25%) times the average daily difference between the Non-Revolving Commitment and the principal indebtedness evidenced by the Non-Revolving Line Note. This fee shall begin to accrue upon the earlier of (A) the date upon which Grizzly becomes a Borrower hereunder or (B) September 30, 1995, and shall be due and payable commencing December 31, 1995 and thereafter on the 39 19 first Banking Day following the last day of each quarter until the expiration of the Non-Revolving Availability Period. 2.2 Expenses. (a) Borrowers agree to immediately repay Bank for costs and expenses that include, without limitation, filing, recording and search fees, appraisal fees, title report fees, documentation fees, and all other costs and expenses incurred in the negotiation, preparation, administration and enforcement of this Agreement and any agreement or instrument required by this Agreement, and any amendments or modifications of the foregoing. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of Bank's in-house counsel. (b) Borrowers agree to reimburse Bank for the cost of periodic audits and appraisals of the personal property collateral securing this Agreement, at such intervals as Bank may reasonably require but, unless an Event of Default or Potential Event of Default has occurred or exists, no more frequently than semi-annually. The audits and appraisals may be performed by employees of Bank or by independent appraisers. 3. COLLATERAL. 3.1 All Personal Property. Borrowers' obligations to Bank under this Agreement are secured by, and Borrowers hereby grants Bank a security interest in, all personal property Borrowers now own or will own in the future and other property described in Exhibit D attached hereto, including the Stock of G.T., Grant, effective concurrently with the release of the lien of Bank Leumi Trust Company of New York as to the Stock of Grant only, pursuant to the Subordination Agreement, and any other stock owned by any Borrower ("Collateral"), and as is further described in security agreements and pledge agreements of even date herewith executed by Borrowers in favor of Bank (the "Security Agreements"). In addition, all Collateral securing this Agreement shall also secure all other present and future obligations of Borrowers to Bank (excluding any consumer credit covered by the federal Truth in Lending law, unless Borrower has otherwise agreed in writing). All personal property Collateral securing any other present or future obligations of Borrower to Bank shall also secure this Agreement. 4. DISBURSEMENTS, PAYMENTS AND COSTS. 4.1 Request for Credit. Each request for an extension of credit will be made in writing by an authorized officer of Arlen, Grant or G.T. acting on behalf of the 40 20 Borrowers (the "Agent"), in a manner acceptable to Bank, substantially in the form of Exhibit E or by another means acceptable to Bank. 4.2 Disbursements and Payments. Each disbursement by Bank and each payment by Borrowers will be: (a) made at Bank's branch (or other location) selected by Bank from time to time. (b) made for the account of Bank's branch selected by Bank from time to time. (c) made in immediately available funds, or such other type of funds selected by Bank. (d) evidenced by records kept by Bank. In addition, Bank may, at its discretion, require Borrowers to sign one or more promissory notes. 4.3 Telephone Authorization. (a) Bank may honor telephone instructions for advances or repayments or for the designation of optional interest rates given by any officer of Borrowers or a person or persons so authorized by any officer of Borrowers. (b) Advances will be deposited in, and repayments will be withdrawn from, Borrowers' account numbers 01800149770 ("Arlen Account"), 01800146270 ("Grant Account") or 01800144670 ("G.T. Account") (collectively, the "Accounts"), or such other account(s) with Bank as designated in writing by Borrowers. (c) Bank will provide written confirmation to Borrowers of transactions made based on telephone instructions. Borrowers agree to notify Bank promptly of any discrepancy between the confirmation and telephone instructions. If there is a discrepancy and Bank has already acted on the telephone instructions, the telephone instructions will prevail over the written confirmation. (d) Borrowers indemnify and holds harmless Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone instructions it reasonably believes are made by an officer of any Borrower or a person authorized by an officer of any Borrower. This indemnity and agreement to hold harmless will survive this Agreement's termination. 41 21 4.4 Direct Debit. (a) Borrowers agree that interest and principal payments and any fees will be deducted automatically on the due date from the Arlen Account, or any of the other Accounts which contains sufficient funds. (b) Bank will debit the Accounts on the dates the payments become due. If a due date does not fall on a Banking Day, Bank will debit the Accounts on the first Banking Day following the due date. (c) Borrowers will maintain sufficient funds in the Arlen Account on the dates Bank enters debits authorized by this Agreement. If there are insufficient funds in the Arlen Account or the other Accounts on the date Bank enters any debit authorized by this Agreement, Borrowers shall immediately, after notice from Bank, pay such shortfall to Bank. 4.5 Banking Days. Unless otherwise provided in this Agreement, a "Banking Day" is a day other than a Saturday or a Sunday, on which Bank is open for business in California. For amounts bearing interest at an Offshore Rate (if any), a Banking Day is a day other than a Saturday or a Sunday on which Bank is open for business in California and dealing in offshore dollars. All payments and disbursements which would be due on a day which is not a Banking Day will be due on the next Banking Day. All payments received on a day which is not a Banking Day will be applied to the applicable Line of Credit on the next Banking Day. 4.6 Taxes. Borrowers will not deduct any taxes from any payments made to Bank. If any government authority imposes any taxes or charges on any payments made by the Borrowers, Borrowers will pay the taxes or charges. Upon request by Bank, Borrowers will confirm that it has paid the taxes by giving Bank official tax receipts (or notarized copies) within 30 days after the due date. 4.7 Additional Costs. Borrowers will pay Bank, on demand, for Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to Bank. The costs and losses will be allocated to the loans in a manner determined by Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to Bank's assets and commitments for credit. 42 22 4.8 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 4.9 Interest on Late Payments. At Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date until paid at Bank's Prime Rate plus two percent (2.0%). This may result in compounding of interest. 4.10 Default Rate. Upon the occurrence and during the continuance of any Event of Default, at Bank's sole option Borrowers shall pay interest on the outstanding principal and interest at the rate of interest otherwise provided under this Agreement plus three percent (3.0%) (the "Default Rate"). This will not constitute a waiver of any Event of Default. 4.11 Overdrafts. At Bank's sole option in each instance, Bank may make advances under this Agreement to prevent or cover an overdraft on any account of Borrowers with Bank. Each such advance will accrue interest from the date of the advance or the date on which the account is overdrawn, whichever occurs first, at the interest rate described in this Agreement. 4.12 Overadvances. If at any time the Loan Balance exceeds the lesser of the Commitment or the Borrowing Base, at Bank's option that amount shall be immediately due and payable on demand. 5. CONDITIONS. 5.1 Initial Advance. Bank must have received the following items, in form and content acceptable to Bank, before it is required to extend any credit to Borrowers under this Agreement: (a) Authorizations. Evidence that the execution, delivery and performance by Borrowers and each guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. (b) Notes. The fully executed Revolving Line Note and Non-Revolving Line Note. (c) Borrowing Base Certificate. Borrowing Base Certificate, substantially in the form of Exhibit F hereto, signed by designated officers of Borrowers and delivered to Banks. 43 23 (d) Security Agreements. Signed original security agreements, pledge agreements, financing statements and fixture filings which Bank requires. Borrowers shall also have delivered or caused to be delivered to Bank all such Collateral, including but not limited to the stock of G.T., in which Bank requires a possessory security interest. (e) Evidence of Priority. Evidence that security interests and liens in favor of Bank are valid, enforceable, perfected and prior to all other rights and interests, except those Bank consents to in writing. (f) Landlord's/Mortgagee Waivers. For any personal property Collateral located on real property which is subject to a mortgage or deed of trust or which is not owned by a Borrower, Borrowers shall use their best efforts to obtain a Landlord's and/or Mortgagee's Waiver from the owner/lessor of the real property and the holder of any mortgage or deed of trust. (g) Insurance. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement. (h) Business Interruption Insurance. A business interruption insurance policy for Grant for at least Two Million Seven Hundred Thousand Dollars ($2,700,000), and for G.T. for at least Four Million Dollars ($4,000,000), with an insurer acceptable to Bank, and with Bank named as an additional loss payee, provided, however, evidence of such coverage may be provided to Bank within thirty (30) days of the Closing Date. (i) Guaranties. Continuing Guaranty signed by Arlen Holdings Corp. ("Arlen Holdings"), in the amount of Eleven Million Five Hundred Fifty Thousand Dollars ($11,550,000). (j) Legal Opinion. A written opinion from Borrowers' legal counsel, covering such matters as Bank may require. The legal counsel and the terms of the opinion must be acceptable to Bank. (k) Good Standing. Certificates of good standing for Borrowers from their state of incorporation and from any other state in which Borrowers are required to qualify to conduct their business. (l) Accounts. The Accounts shall have been opened, and Borrowers shall have established with Bank all of Borrowers' primary operating and business accounts. 44 24 (m) Expenses. All Bank's expenses incurred in connection with the preparation and negotiation of this Agreement. (n) Other Required Documentation: Subordination Agreement ("Subordination Agreement"), substantially in the form of Exhibit G hereto, signed by all signatories indicated therein. The date on which all of the foregoing conditions have been satisfied is the "Closing Date." This Agreement, the Notes, the Security Agreements, the Continuing Guaranty, the Subordination Agreement and the Authorizations and any amendments, modifications or replacements thereof may be referred to, collectively as the "Loan Documents." 5.2 Conditions to Each Advance. Before each extension of credit, including the first: (a) A Request For Credit in form and substance satisfactory to Bank. (b) Borrowing Base Certificate signed by Borrower and delivered to Bank. (c) In the case of each Advance under the Revolving Line of Credit and each issuance of a letter of credit, the Loan Balance, after giving effect to such Advance or letter of credit, as the case may be, shall not exceed the lesser of the Commitment or the Borrowing Base. (d) In the case of an advance under the Non-Revolving Line of Credit, the stock or asset acquisition shall have been approved by Bank, as provide in Section 7.28. (e) Bank's most recent audit of Borrower's records must be satisfactory. (f) The Representations and Warranties hereunder must be true and correct in all material respects. (g) No Event of Default or condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default (any such condition, event or act being referred to herein as a "Potential Event of Default"), shall have occurred and be continuing or shall exist. (h) Any other items that Bank reasonably requires. 45 25 6. REPRESENTATIONS AND WARRANTIES. When Borrowers sign this Agreement, and until Bank is repaid in full, Borrowers make the following representations and warranties. Each request for an extension of credit constitutes a renewed representation. 6.1 Organization of Borrowers. G.T. is a corporation duly formed and validly existing under the laws of the State of California. Arlen and Grant are corporations duly formed and validly existing under the laws of the State of Delaware. 6.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within Borrowers' powers, have been duly authorized, and do not conflict with any of its organizational papers. 6.3 Enforceable Agreement. This Agreement and any related loan documents, are legal, valid and binding agreements of Borrowers, enforceable against Borrowers in accordance with their terms, and any instrument or agreement required hereunder or thereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 6.4 Good Standing. In each state in which Borrowers do business, they are properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. 6.5 No Conflicts. This Agreement does not conflict with any law, agreement, or obligation by which any Borrower is bound. 6.6 Financial Information. All financial and other information that has been or will be supplied to Bank, including Borrowers' financial statement dated as of February 28, 1995, is: (a) sufficiently complete to give Bank accurate knowledge of Borrowers' and Arlen Holdings' financial condition; (b) in form and content required by Bank; and (c) in compliance with all government regulations that apply. Since the dates of the financial statements specified above, there has been no material adverse change in the assets or the financial condition of any Borrower or Arlen Holdings. 46 26 6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened against any Borrower or any guarantor except as disclosed on Schedule 6.7 attached hereto. 6.8 Collateral. All Collateral required in this Agreement is owned by the grantor of the security interest, free of any title defects or any liens or interests of others, except as disclosed on Schedule 6.8 attached hereto (collectively, the "Permitted Encumbrances"). 6.9 Permits, Franchises. Each Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged without conflict with the rights of others. 6.10 Other Obligations. Borrowers are not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 6.11 Income Tax Returns. Borrowers have filed all required tax returns and have no knowledge of any pending assessments or adjustments of its income tax for any year. 6.12 No Event of Default. No event has occurred which is, or with notice or lapse of time or both would be, an Event of Default under this Agreement. 6.13 ERISA Plans. (a) Each Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (c) No action by any Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. 47 27 (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended from time to time. (iii) "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. (iv) "Plan" means any employee pension benefit plan maintained or contributed to by Borrower and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. 7. COVENANTS. Borrowers agree, so long as credit is available under this Agreement and until Bank is repaid in full: 7.1 Use of Proceeds. (a) Revolving Line of Credit. To use the proceeds of the Revolving Line of Credit only to repay Grant's and G.T.'s existing lines of credit with Shawmut Capital Corporation and for working capital purposes (which shall not include any acquisitions of the stock or assets of any businesses except for inventory acquired in the ordinary course of business). (b) Non-Revolving Line of Credit. To use the proceeds of the Non-Revolving Line of Credit for purchases or acquisitions of the stock or assets of businesses, as approved by Bank and its counsel on a case by case basis in the exercise in its sole discretion, as provided in Section 7.28. 7.2 Financial Information. To provide the following financial information and statements and such additional information as requested by Bank from time to time: (a) Within 120 days of Borrowers' fiscal year end, Borrowers' annual financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to Bank. The statements shall be prepared on a consolidated and consolidating basis. 48 28 (b) Within 30 days of the period's end, Borrowers' monthly financial statements. These financial statements may be Borrower prepared. The statements shall be prepared on a consolidated and consolidating basis. (c) Within 15 days of period end, a monthly detailed aging of Borrowers' accounts receivable and accounts payable, a detailed analysis of Borrowers' Inventory and a Borrowing Base Certificate. (d) Within 30 days of fiscal year end, Borrowers' annual projections, to include twelve month running balance street, income statement and cash flow statements. These projections may be prepared by the Borrowers. The projections shall be prepared on a consolidated and consolidating basis. (e) Copies of The Arlen Corporation's Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report within 15 days after the date of filing with the Securities and Exchange Commission. (f) Such financial statements or other information regarding Arlen Holdings which Bank may reasonably request from time to time. 7.3 Current Ratio. To maintain on a consolidated basis as of the last day of each month, a ratio of current assets to current liabilities of at least 1:50:1.00. 7.4 Tangible Net Worth. To maintain on a consolidated basis as of the last day of each month, Tangible Net Worth equal to at least Seven Million Two Hundred Fifty Thousand Dollars ($7,250,000). "Tangible Net Worth" means the gross book value of Borrowers' assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors or shareholders of Borrowers) less total liabilities, including, without limitation, accrued and deferred income taxes, and any reserves against assets, plus subordinated debt acceptable to Bank. 7.5 Total Liabilities to Tangible Net Worth. To maintain on a consolidated basis as of the last day of each month, a ratio of Total Liabilities to Tangible Net Worth not exceeding 2:00:1.00. 49 29 "Total Liabilities" means the sum of current liabilities plus long term liabilities less subordinated debt acceptable to Bank. 7.6 Interest Charge Ratio. To maintain on a consolidated basis as of the last day of each month, calculated on a rolling twelve-month basis, an Interest Charge ratio of at least 2.50:1.00. "Interest Charge Ratio" means the ratio of Cash Flow to Interest Charges. "Cash Flow" is defined as net income from operations and investments, before taxes, plus interest expense. "Interest Charges" is defined as the sum of all interest payable for the period to a lender in connection with borrowed money or the deferred purchase price of assets that is treated as interest in accordance with GAAP. 7.7 Fixed Charge Coverage Ratio. To maintain on a consolidated basis as of the end of each month, calculated on a rolling twelve-month basis, a Fixed Charge Coverage Ratio of at least 2.00:1.00. "Fixed Charge Coverage Ratio" means the ratio of Adjusted Net Income to the current portion of long-term debt determined in accordance with GAAP. "Adjusted Net Income" means the sum of net income after taxes, plus depreciation and amortization expense. 7.8 Profitability. Borrowers shall maintain, on a consolidated basis, a positive net income after taxes and extraordinary items on an annual basis, and shall not suffer losses for any two consecutive quarters. 7.9 Other Debts. Not to have outstanding or incur any direct or contingent debts or lease obligations (other than those to Bank), or guaranty or become liable for the debts of others without Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Debts and lines of credit and leases in existence on the date of this Agreement disclosed in writing to Bank prior to the date of this Agreement or in Borrowers' financial statement dated February 28, 1995. 50 30 (e) Additional debts and operating lease obligations for the acquisition of fixed or capital assets, except to the extent prohibited elsewhere in this Agreement. (f) Intercompany loans of the proceeds of the Revolving Line of Credit among the Borrowers to be used for working capital purposes only. 7.10 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on property Borrowers now or later own (including the Stock of Grant), except: (a) Liens or security interests in favor of Bank. (b) Liens for taxes not yet due. (c) The Permitted Encumbrances outstanding on the date of this Agreement. 7.11 Capital Expenditures. Not to spend or incur capital leases or direct obligations for more than Seven Hundred Fifty Thousand dollars ($750,000) in any single fiscal year to acquire fixed or capital assets, excluding asset acquisitions permitted under the Non-Revolving Line of Credit or other acquisitions permitted under Section 7.28 of this Agreement. 7.12 Dividends/Distributions. Not to declare or pay any dividends or distributions on any of its shares in excess of 20% of net profits after taxes on an annual basis, and not to purchase, redeem or otherwise acquire for value any of its shares, or create any sinking fund in relation thereto. 7.13 Loans to Officers. Not to make any loans, advances or other extensions of credit to any of Borrowers' executives, officers, directors, shareholders or employees (or any relatives of any of the foregoing) in excess of an aggregate of $50,000 in any fiscal year. 7.14 Change of Control. Not to cause, permit, or suffer any change, direct or indirect, in any Borrower's ownership, including but not limited to a change in ownership arising from the sale, transfer or foreclosure of the stock of any Borrower which has been pledged to another financial institution; or any change in the office of the President of any Borrower. 51 31 7.15 Notices to Bank. To promptly notify Bank in writing of: (a) any lawsuit over One Hundred Thousand Dollars ($100,000) against any Borrower or any guarantor; (b) any substantial dispute between any Borrower or any guarantor and any government authority; (c) any proposed or anticipated sale, transfer, or foreclosure of the stock of any Borrower which has been pledged to another financial institution, at least thirty (30) days in advance thereof; (d) any failure to comply with this Agreement; (e) any material adverse change in any Borrower's or any guarantor's financial condition or operations; (f) any change in any Borrower's name, address, or legal structure; and (g) the occurrence of any Event of Default. 7.16 Books and Records. To maintain adequate books and records. 7.17 Audits. To allow Bank and its agents to inspect Borrowers' properties and examine, audit and make copies of books and records at any reasonable time. If any of Borrowers' properties, books or records are in the possession of a third party, Borrowers authorize that third party to permit Bank or its agents to have access to perform inspections or audits and to respond to Bank's requests for information concerning such properties, books and records. 7.18 Compliance with Laws. To comply in all material respects with the laws, regulations, and orders of any government body with authority over Borrowers' businesses (including any fictitious name statute and all statutes regarding the processing, manufacture, storage, transportation, sale or use of hazardous or toxic materials). 7.19 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises Borrowers now has which are necessary to carry on Borrowers' businesses. 7.20 Maintenance of Properties. To make any repairs, renewals, or replacements to keep Borrowers' properties in good working condition. 52 32 7.21 Perfection of Liens. To help Bank perfect and protect its security interests and liens, and reimburse the Bank for related costs incurred to protect its security interests and liens. 7.22 Cooperation. To take any action requested by Bank to carry out the intent of this Agreement. 7.23 Insurance. (a) Insurance Covering Collateral. To maintain all risk property damage insurance policies covering the tangible property comprising the Collateral. Each insurance policy must be in an amount acceptable to Bank. The insurance must be issued by an insurance company acceptable to Bank and must include a lender's loss payable endorsement in favor of Bank in a form acceptable to Bank. (b) General Business Insurance. To maintain insurance as is usual for the business it is in. (c) Evidence of Insurance. Upon the request of Bank, to deliver to Bank a copy of each insurance policy, or, if permitted by Bank, a certificate of insurance listing all insurance in force. 7.24 Operating/Business Accounts. Establish and maintain with Bank all of Borrowers' operating and business accounts and all other banking services associated with the operation of Borrowers' businesses, including without limitation any demand deposit accounts, except that Borrowers may maintain an account no. 05413095-01 at Bank Leumi Trust Company of New York, with a balance not to exceed $200,000, and Grant may maintain account no. 12010-17361 at Bank of America, with a balance not to exceed $2,500. 7.25 Additional Negative Covenants. Not to, without Bank's prior written consent: (a) engage in any business activities substantially different from Borrowers' present businesses. (b) liquidate or dissolve any Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination. 53 33 (d) sell, lease or dispose of all or a substantial part of any Borrower's business or assets except in the ordinary course of such Borrower's business. (e) sell or otherwise dispose of any assets for less than fair market value, or enter into any sale and leaseback agreement covering any of its fixed or capital assets. (f) issue any new stock of any Borrower or any subsidiary of any Borrower in which Bank does not have a first priority, perfected security interest. (g) voluntarily suspend its business for more than ten (10) days in any thirty (30) day period. 7.26 No Consumer Purpose. Not to use any loans or advances hereunder for personal, family or household purposes. 7.27 ERISA Plans. To give prompt written notice to Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (b) Any action by any Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 7.28 Acquisitions. Not to acquire or purchase a business or its assets without the prior written consent of Bank unless (a) Borrowers are currently, and on a proforma basis, in compliance with the requirements of the Loan Documents, (b) a Borrower is the surviving entity after the acquisition, (c) the acquisition involves a business in a related line to the acquiring Borrower's business, (d) all such acquisitions do not exceed One Million Dollars ($1,000,000) in the aggregate in any calendar year and (e) the documentation and the transactions contemplated thereby for each such acquisition has been approved by Bank and its legal counsel. 7.29 Arlen Guaranty. Not to permit the liability of Arlen, pursuant to a guaranty of the obligations of Grizzly in favor of American Pacific Savings Bank, to increase above the principal amount of $500,000. 54 34 7.30 Appointment of Bank as Attorney in Fact. Until all the obligations of Borrowers to Bank have been paid in full, each Borrower irrevocably appoints Bank as its attorney in fact and authorizes and empowers it to: (a) Endorse and affix such Borrower's name to or upon any check, draft, note, instrument or other writing relating to the collection of Accounts Receivable, or relating to any other Collateral, or upon any check or other instrument given in payment thereof, or upon any omitted assignment, notification of assignment, demand or auditor's verification relating to Collateral and upon all other instruments and writings required to assert and protect Bank's rights in the Collateral. (b) Upon the happening of an Event of Default, receive, open and dispose of all mail addressed to any Borrower and notify the Post Office authorities to change the address for the delivery of mail addressed to such Borrower to such address as Bank may designate. These powers, being coupled with an interest, are irrevocable while Borrowers' obligations to Bank remain unpaid. 8. DEFAULT. 8.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) Failure to Pay. Borrowers fail to make a payment under this Agreement when due. (b) Non-Compliance. Borrowers or any guarantor fail to meet the conditions of, or fail to perform any obligation under: (i) this Agreement (provided, however, Borrowers shall be permitted a ten (10) day cure period for any Event of Default arising from a failure to timely deliver financial reports and other information required under Section 7.2 hereof), (ii) any guaranty, (iii) any other agreement made in connection with this Agreement, or (iv) any other agreement any Borrower or any guarantor has with Bank or any affiliate of Bank. 55 35 (c) Other Defaults. Any default occurs under any agreement in connection with any credit Borrowers or any guarantor has obtained from any other creditor or which any Borrower or any guarantor has guaranteed if the default consists of failing to make a payment when due or gives the other creditor the right to accelerate the obligation. (d) Lien Priority. Bank fails to have an enforceable first lien (except for any liens to which Bank has consented in writing) on or security interest in any Collateral. (e) False Information. Any representation or warranty under this Agreement or any agreement, instrument or certificate executed pursuant to this Agreement or in connection with any transaction contemplated hereby shall prove to have been false or misleading in any material respect when made or when deemed to have been made. (f) Bankruptcy. Any Borrower or any guarantor files a bankruptcy petition, a bankruptcy petition is filed against any Borrower or any guarantor or any Borrower or any guarantor makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy petition filed against a Borrower or any guarantor is dismissed within a period of sixty (60) days after the filing; provided, however, that Bank will not be obligated to extend any additional credit to such Borrower during any bankruptcy period. (g) Receivers. A receiver or similar official is appointed for any Borrower's or any guarantor's business, or the business is terminated. (h) Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors against any Borrower or any guarantor in an aggregate amount of Two Hundred Thousand Dollars ($200,000.00) and such lawsuit or lawsuits are not dismissed or fully bonded within twenty (20) calendar days after service of process upon such Borrower or any guarantor. (i) Judgments. Any judgments or arbitration awards are entered against any Borrower or any guarantor and, absent procurement of a stay of execution, such judgment or award remains unbonded or unsatisfied for ten (10) calendar days after the date of entry; or Borrower or any guarantor enters into any settlement agreement with respect to any litigation or arbitration, in an aggregate amount of Fifty Thousand Dollars ($50,000.00) or more in excess of any insurance coverage. 56 36 (j) Government Action. Any government authority takes action that Bank reasonably believes adversely affects any Borrower's or any guarantor's financial condition or ability to repay. (k) Default under Guaranty or Subordination Agreement. Any guaranty, subordination agreement, security agreement, deed of trust, or other document required by this Agreement is violated, revoked or no longer in effect. (l) Change of Control. Any change of ownership of any Borrower arising from the sale, transfer or foreclosure of the stock of any Borrower which has been pledged to another financial institution. (m) Material Adverse Change. A material adverse change occurs in any Borrower's or any guarantor's financial condition, properties or prospects, or ability to repay the obligations hereunder. (n) ERISA Plans. The occurrence of a reportable event with respect to a Plan which is, in the reasonable judgment of Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA, or could reasonably be expected, in the judgment of Bank, to subject Borrower to any tax, penalty or liability (or any combination of the foregoing) which,in the aggregate, would have a material adverse effect on the financial condition of Borrower with respect to a Plan. 8.2 Remedies. Upon and after the occurrence of an Event of Default, Bank shall have all of the following rights and remedies: (a) All obligations and indebtedness hereunder may, at the option of Bank and without demand, notice, or legal process of any kind, be declared, and immediately shall become, due and payable; (b) The Loans shall bear interest at the Default Rate; (c) All of the rights and remedies of a secured party under the California Commercial Code or other applicable law, all of which rights and remedies shall be cumulative, and not exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Agreement or in any of the documents or agreements executed in connection herewith or which Bank may otherwise have under any applicable law or in equity; 57 37 (d) The right to (i) peacefully enter upon the premises of any Borrower or any other place or places where the Collateral is located, without any obligation to pay rent to such Borrower or any other person, through self-help and without judicial process or first obtaining a final judgment or giving such Borrower notice and opportunity for a hearing on the validity of Bank's claim, and remove the Collateral from such premises and places to the premises of Bank or any agent of Bank, for such time as Bank may require to collect or liquidate the Collateral, and/or (ii) require Borrower to assemble and deliver the Collateral to Bank at a place to be designated by Bank; (e) The right to (i) open Borrowers' mail and collect any and all amounts due from Account Debtors or direct that Borrowers' mail be diverted to a post office box or other location as determined by Bank, (ii) notify Account Debtors that the Accounts Receivable have been assigned to Bank and that Bank has a security interest therein and (iii) direct such Account Debtors to make all payments due from them upon the Accounts Receivable, directly to Bank or to a lock box designated by Bank. Bank shall promptly furnish Borrowers with a copy of any such notice sent and Borrowers hereby agree that any such notice in Bank's sole discretion, may be sent on Bank's stationery, in which event, such Borrower shall, upon demand, co-sign such notice with Bank; and The right to sell, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, in lots or in bulk, for cash or on credit, all as Bank, in its sole discretion, may deem advisable. At any such sale or sales of the Collateral, the Collateral need not be in view of those present and attending the sale, nor at the same location at which the sale is being conducted. Bank shall have the right to conduct such sales on Borrowers' premises or elsewhere and shall have the right to use Borrowers' premises without charge for such sales for such time or times as Bank may see fit. Bank is hereby granted a license or other right to use, without charge, Borrowers' labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrowers' rights under all licenses and all franchise agreements shall inure to Bank's benefit but Bank shall have no obligations thereunder. Bank may purchase all or any part of the 58 38 Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may setoff the amount of such price against amounts due under this Agreement. The proceeds realized from the sale of any Collateral shall be applied first to the costs and expenses, including attorneys' fees, incurred by Bank for collection and for acquisition, completion, protection, removal, storage, sale and delivery of the Collateral; second to interest due upon the Loans; and third to the principal of the Loans. Bank shall account to Borrower for any surplus. If any deficiency shall arise, Borrower shall remain liable to Bank therefor. 8.3 Costs and Expenses. Upon the occurrence of any Event of Default, Bank shall be entitled to recover all costs, expenses, and reasonable attorneys' fees (including any allocated costs of in-house counsel) in connection with the administering or enforcing of this Agreement, whether or not an action is filed, in accordance with Section 2.2 hereof. 9. MISCELLANEOUS. 9.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to Bank and all financial covenants will be made under generally accepted accounting principles consistently applied ("GAAP"). 9.2 California Law. This Agreement is governed by California law. 9.3 Successors and Assigns. This Agreement is binding on Borrowers' and Bank's successors and assignees. Borrowers agree that they may not assign this Agreement without Bank's prior written consent. Bank may sell participations in or assign these loans, or any portion thereof, and may exchange financial information about Borrowers with actual or potential participants or assignees. If a participation is sold or any portion of the loans is assigned, the purchaser will have the right of set-off against Borrowers. 9.4 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. No failure on the part of Bank to exercise, and no delay in exercising, any right, power, or remedy under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. Any consent or waiver under this Agreement must be in writing. If Bank waives a default, it may enforce a later default. 59 39 9.5 Multiple Borrowers. If two or more borrowers sign this Agreement, each will be individually obligated to repay Bank in full, and all will be obligated together. 9.6 Entire Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between Bank and Borrowers concerning this credit; and (b) replace any prior oral or written agreements between Bank and Borrowers concerning this credit; and (c) are intended by Bank and Borrowers as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 9.7 Notices. Except as otherwise provided herein, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as Bank and Borrowers may specify from time to time in writing. 9.8 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 9.9 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 9.10 Further Assurances. Borrowers shall, at their expense and without expense to Bank, do, execute and deliver such further acts and documents as Bank from time to time reasonably requires for the assuring to Bank the rights created or intended to be created by this Agreement, the perfection or priority of Bank's liens and security interests, and for carrying out the intention or facilitating the performance of the terms of this Agreement or any document executed in connection with this Agreement. 60 40 9.11 Hazardous Waste Indemnification. Borrowers will indemnify and hold harmless Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about Borrowers' property or operations or property leased to Borrowers. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or "toxic" under any federal, state or local law. This indemnity will survive repayment of Borrowers' obligations to Bank. Upon demand by Bank, Borrowers will defend any investigation, action or proceeding alleging the presence of any hazardous substance in any such location, which affects any of Borrowers' or operations or property leased to Borrowers or which is brought or commenced against Bank, whether alone or together with Borrowers or any other person, all at Borrowers' own cost and by counsel to be approved by Bank in the exercise of its reasonable judgment. In the alternative, Bank may elect to conduct its own defense at the expense of Borrower. 9.12 Joint Borrower Provisions. The Joint Borrower Provisions set forth on Schedule 1 attached hereto are incorporated herein as if fully set forth are hereby made a part of this Agreement. 9.13 Waiver of Jury Trial. The parties to this Agreement acknowledge that jury trials often entail additional expenses and delays not occasioned by nonjury trials. The parties to this Agreement further agree and stipulate that a fair trial may be had before a state or federal judge by means of a bench trial without a jury. In view of the foregoing, and as a specifically negotiated provision of this Agreement, each party to this Agreement hereby expressly waives any right to trial by jury of any claim, demand, action or cause of action (1) arising under this Agreement or any other instrument, document or agreement executed or delivered in connection herewith, or (2) in any way connected with or related or incidental to the dealings of the parties hereto or any of them with respect to this Agreement or any other instrument, document or agreement executed or delivered in connection herewith, or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether sounding in contract or tort or otherwise; and each party hereby agrees and consents that any such claim, demand, 61 41 action or cause of action shall be decided by court trial without a jury, and that any party to this Agreement may file an original counterpart or a copy of this section with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury. This Agreement is executed as of the date stated at the top of the first page. "Borrowers" ARLEN AUTOMOTIVE, INC., a Delaware corporation By /s/ Allan J.Marrus ------------------------------------ Allan J. Marrus, President By /s/ Stephen B. Delman ------------------------------------ Stephen B. Delman, Assistant Secretary Address where notices to all Borrowers are to be sent: c/o Arlen Automotive, Inc. 505 Eighth Avenue New York, NY 10018 Attn: Allan J. Marrus GRANT PRODUCTS, INC., a Delaware corporation By /s/ Tommy A. Poteet ------------------------------------ Tommy A. Poteet, President By /s/ Stephen B. Delman ------------------------------------ Stephen B. Delman, Assistant Secretary 62 42 G.T. STYLING, INC., a California corporation By /s/ Jeffery J. Gati ---------------------------------- Jeffery J. Gati, President By /s/ Stephen B. Delman ---------------------------------- Stephen B. Delman, Assistant Secretary "Bank" SUMITOMO BANK OF CALIFORNIA By /s/ Matthew R.Steenhuyse ----------------------------------- Matthew R. Van Steenhuyse Vice President Address where notices to Bank are to be sent: Sumitomo Bank of California 611 West Sixth Street, Suite 3900 Los Angeles, California 90071 Attn: Matthew R. Van Steenhuyse 63 43 Schedule 1 Joint Borrower Provisions Borrowers acknowledge and agree that Borrowers shall be jointly and severally liable for all obligations arising under this Agreement, the Revolving Line Note, the Non-Revolving Line Note, the Term Note and all of the other documents and agreements executed in connection with this Agreement (collectively, the "Loan Documents"). In furtherance thereof, Borrowers acknowledge and agree as follows: 1. For the purpose of implementing the joint borrower provisions of the Loan Documents, Borrowers hereby irrevocably appoint each other as their agent and attorney-in-fact for all purposes of the Loan Documents, including the giving and receiving of notices and other communications. 2. It is understood and agreed that the handling of this credit facility on a joint borrowing basis as set forth in this Agreement is solely as an accommodation to Borrowers and at their request, and that Bank shall incur no liability to Borrowers as a result thereof. To induce Bank to do so, and in consideration thereof, Borrowers hereby agree to indemnify Bank and hold Bank harmless from and against any and all liabilities, expenses, losses, damages and/or claims of damage or injury asserted against Bank by Borrowers or by any other person or entity arising from or incurred by reason of Bank's handling of the financing arrangement of Borrowers as herein provided, reliance by Bank on any requests or instructions from Borrowers or any other action taken by Bank. 3. Each Borrower acknowledges that the liens and security interests created or granted herein and by the other Loan Documents will or may secure obligations of persons or entities other than such Borrower and, in full recognition of that fact, Borrowers consent and agree that Bank may, at any time and from time to time, without notice or demand, and without affecting the enforceability or security hereof or of any other Loan Document: (a) supplement, modify, amend, extend, renew, accelerate, or otherwise change the time for payment or the terms of the obligations of Borrowers or any part thereof, including any increase or decrease of the rate(s) of interest thereon; (b) supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the obligations of Borrowers or any part thereof or any of the Loan Documents or any additional 64 44 security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (c) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the obligations of Borrowers or any part thereof; (d) accept partial payments on the obligations of Borrowers; (e) receive and hold additional security or guaranties for the obligations of Borrowers or any part thereof; (f) release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer and enforce any security or guaranties, and apply any security and direct the order or manner of sale thereof as Bank in its sole and absolute discretion may determine; (g) release any person or entity or any guarantor from any personal liability with respect to the obligations of Borrowers or any part thereof; (h) settle, release on terms satisfactory to Bank or by operation of applicable laws or otherwise liquidate or enforce any obligations of Borrowers and any security or guaranty therefor in any manner, consent to the transfer of any security and bid and purchase at any sale; and (i) consent to the merger, change or any other restructuring or termination of the corporate existence of Borrowers or any other person, and correspondingly restructure the obligations of Borrowers, and any such merger, change, restructuring or termination shall not affect the liability of Borrowers or the continuing existence of any lien or security interest hereunder, under any other Loan Document to which any Borrower is a party or the enforceability hereof or thereof with respect to all or any part of the obligations of Borrowers. Upon the occurrence of and during the continuance of any Event of Default, Bank may enforce this Agreement and the other Loan Documents independently as to each Borrower and independently of any other remedy or security Bank at any time may have or hold in connection with the obligations of Borrowers, and it shall not be necessary for Bank to marshal assets in favor of any of the Borrowers or any other person or entity or to proceed upon or against and/or exhaust any other 65 45 security or remedy before proceeding to enforce this Agreement and the other Loan Documents. Each of the Borrowers expressly waives any right to require Bank to marshal assets in favor of any Borrower or any other person or entity or to proceed against any other person or entity or any Collateral provided by any other person, and agrees that Bank may proceed against any persons or entities and/or Collateral in such order as it shall determine in its sole and absolute discretion. Bank may file a separate action or actions against any Borrower, whether action is brought or prosecuted with respect to any other security or against any other person, or whether any other person or entity is joined in any such action or actions. Each of the Borrowers agrees that Bank and each of the Borrowers and any other person or entity may deal with each other in connection with the obligations of Borrowers or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the security of this Agreement or the other Loan Documents. Each of the Borrowers expressly waives the benefit of any statute(s) of limitations affecting its liability hereunder or the enforcement of the obligations of Borrowers or any liens or security interests created or granted herein or by any other Loan Document. The rights of Bank hereunder and under the other Loan Documents shall be reinstated and revived, and the enforceability of this Agreement and the other Loan Documents shall continue, with respect to any amount at any time paid on account of the obligations of Borrowers which thereafter shall be required to be restored or returned by Bank upon bankruptcy, insolvency or reorganization of any Borrower or any other person, or otherwise, all as though such amount had not been paid. The enforceability of this Agreement and the other Loan Documents at all times shall remain effective even though the obligations of Borrowers, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any of the Borrowers or any other person or entity and whether or not any of the Borrowers or any other person or entity shall have any personal liability with respect thereto. Each of the Borrowers expressly waives any and all defenses now or hereafter arising or asserted by reason of (a) any disability or other defense of any of the other Borrowers or any other person or entity with respect to the obligations of Borrowers, (b) the unenforceability or invalidity of any security or guaranty for the obligations of Borrowers or the lack of perfection or continuing perfection or failure of priority of any security for the obligations of Borrowers, (c) the cessation for any cause whatsoever of the liability of any other Borrower or any other person or entity (other than by reason of the full payment and performance of all obligations of Borrowers), (d) any failure of Bank to marshal assets in favor of any of the Borrowers or any other person, (e) any failure of Bank to give notice of sale or 66 46 other disposition to any of the other Borrowers or any other person or entity or any defect in any notice that may be given in connection with any sale or disposition, (f) any failure of Bank to comply with applicable laws in connection with the sale or other disposition of any Collateral or other security for any obligation of Borrowers, including any failure of Bank to conduct a commercially reasonable sale or other disposition of any Collateral or other security for any obligation of Borrowers, (g) any act or omission of Bank or others that directly or indirectly results in or aids the discharge or release of any Borrower or any other person or entity or the obligations of Borrowers or any other security or guaranty therefor by operation of law or otherwise, (h) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (i) any failure of Bank to file or enforce a claim in any bankruptcy or other proceeding with respect to any person, (j) the election by Bank, in any bankruptcy proceeding of any person, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of credit or the grant of any lien under Section 364 of the United States Bankruptcy Code, (l) any use of cash collateral under Section 363 of the United States Bankruptcy Code, (m) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any person, (n) the avoidance of any lien or security interest in favor of Bank for any reason, or (o) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any person, including any discharge of, or bar or stay against collecting, all or any of the obligations of Borrowers (or any interest thereon) in or as a result of any such proceeding. 4. Each of the Borrowers represents and warrants to Bank that such Borrower has established adequate means of obtaining from the other Borrowers, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of the other Borrowers and their respective properties, and each of the Borrowers now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of the other Borrowers and their respective properties. Each of the Borrowers hereby expressly waives and relinquishes any duty on the part of Bank to disclose to such Borrower any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of any other Borrower or such other Borrower's properties, whether now known or hereafter known by Bank during the life of this Agreement. With respect to any of the obligations of Borrowers, Bank need 67 47 not inquire into the powers of any of the Borrowers or the officers or employees acting or purporting to act on its behalf. 5. In the event that all or any part of the obligations of Borrowers at any time are secured by any one or more deeds of trust or mortgages creating or granting liens on any interests in real property, each of the Borrowers authorizes Bank, upon the occurrence of and during the continuance of any Event of Default, at the sole option, without notice or demand and without affecting any obligations of Borrowers, the enforceability of this Agreement, or the validity or enforceability of any liens or security interests of Bank on any Collateral, to foreclose any or all of such deeds of trust or mortgages by judicial or nonjudicial sale. Each of the Borrowers expressly waives any defenses to the enforcement of this Agreement or the other Loan Documents or any liens or security interests created or granted hereby or by the other Loan Documents or to the recovery by Bank against any other Borrower or any other person or entity liable therefor of any deficiency after a judicial or nonjudicial foreclosure or sale, even though such a foreclosure or sale may impair the subrogation rights of such Borrower and may preclude any of them from obtaining reimbursement or contribution from any other person. Each of the Borrowers expressly waives any defenses or benefits that may be derived from California Code of Civil Procedure Section Section 580a, 580b, 580d or 726, or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses it otherwise might or would have under California law or other applicable law. Each of the Borrowers expressly waives any right to receive notice of any judicial or nonjudicial foreclosure or sale of any real property or interest therein subject to any such deeds of trust or mortgages made by any other Borrower and failure to receive any such notice shall not impair or affect any Borrower's obligations hereunder or the enforceability of this Agreement or the other Loan Documents or any liens created or granted hereby or thereby. 6. Notwithstanding anything to the contrary elsewhere contained herein or in any other Loan Document to which any Borrower is a party, each of the Borrowers hereby waives with respect to each other Borrower and its respective successors and assigns (including any surety) and any other party any and all rights at law or in equity, to subrogation, to reimbursement, to exoneration, to contribution, to setoff or to any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, or to a holder or transferee against a maker and which each of the Borrowers may have or hereafter acquire against any other Borrower or any other party in connection with or as a result 68 48 of any Borrower's execution, delivery and/or performance of this Agreement or any other Loan Document to which any such Borrower is a party. Each of the Borrowers agrees that it shall not have or assert any such rights against any other Borrower or any such Borrower's successors and assigns or any other person or entity (including any surety), either directly or as an attempted setoff to any action commenced against such Borrower by the other such Borrower (as borrower or in any other capacity) or any other person. Each of the Borrowers hereby acknowledges and agrees that this waiver is intended to benefit Bank and shall not limit or otherwise affect any of the Borrowers' liability hereunder, under any other Loan Document to which any Borrower is a party, or the enforceability hereof or thereof. 7. Each of the Borrowers warrants and agrees that each of the waivers and consents set forth herein is made with full knowledge of its significance and consequences, with the understanding that events giving rise to any defense waived may diminish, destroy or otherwise adversely affect rights which each of the Borrowers otherwise may have against the other Borrowers, Bank, or others, or against any Collateral. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law. 69 49 EXHIBIT D Description of Collateral "Collateral" means all present and future right, title and interest of Borrowers in or to any personal property or assets whatsoever, and all rights and powers of Borrowers to transfer any interest in or to any personal property or assets whatsoever, including, without limitation, any and all of the following property: (a) All present and future accounts, accounts receivable, agreements, contracts, leases, contract rights, rights to payment, instruments, documents, chattel paper, security agreements, guaranties, undertakings, surety bonds, insurance policies, notes and drafts, and all forms of obligations owing to any Borrower or in which Borrower may have any interest, however created or arising; (b) All present and future general intangibles, all tax refunds of every kind and nature to which Borrower now or hereafter may become entitled, however arising, all other refunds, and all deposits, goodwill, choses in action, trade secrets, computer programs, software, customer lists, trademarks, trade names, patents, licenses, copyrights, technology, processes, proprietary information, franchises and insurance proceeds; (c) All present and future deposit accounts of Borrower, including, without limitation, any demand, time, savings, passbook or like account maintained by any Borrower with any bank, savings and loan association, credit union or like organization, and all money, cash and cash equivalents of Borrower, whether or not deposited in any such deposit account; (d) All present and future books and records, including, without limitation, books of account and ledgers of every kind and nature, all electronically recorded data relating to any Borrower or the business thereof, all receptacles and containers for such records, and all files and correspondence; (e) All present and future goods, including, without limitation, all consumer goods, farm products, inventory, equipment, machinery, tools, molds, dies, furniture, furnishings, fixtures, trade fixtures, motor vehicles and all other goods used in connection with or in the conduct of any 70 50 Borrower's business, including without limitation, all goods as defined in Section 9109(2) of the California Commercial Code; (f) All present and future inventory and merchandise, including, without limitation, all present and future goods held for sale or lease or to be furnished under a contract of service, all raw materials, work in process and finished goods, all packing materials, supplies and containers relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts or documents of title relating to any of the foregoing; (g) All present and future accessions, appurtenances, components, repairs, repair parts, spare parts, replacements, substitutions, additions, issue and/or improvements to or of or with respect to any of the foregoing; (h) All other tangible and intangible property of any Borrower; (i) All rights, remedies, powers and/or privileges of any Borrower with respect to any of the foregoing; and (j) Any and all proceeds and products of any of the foregoing, including, without limitation, all money, accounts, general intangibles, deposit accounts, documents, instruments, chattel paper, goods, insurance proceeds, and any other tangible or intangible property received upon the sale or disposition of any of the foregoing. 71 EX-4.9.1 3 REVOLVING LINE NOTE 1 EXHIBIT 4.9.1 72 2 REVOLVING LINE NOTE $8,500,000 August 10, 1995 Los Angeles, California FOR VALUE RECEIVED, the undersigned promise to pay to the order of Sumitomo Bank of California (the "Bank"), the principal amount of EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000) or such lesser aggregate amount of advances under the Revolving Line of Credit as may be made by the Bank pursuant to the Loan Agreement referred to below, together with interest on the principal amount of each advance under the Revolving Line of Credit remaining unpaid from time to time from the date of each such advance under the Revolving Line of Credit until the date of payment in full, payable as hereinafter set forth. Reference is made to the Commercial Loan Agreement dated as of even date herewith, by and among the undersigned, as Borrowers, and the Bank (the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is the Revolving Line Note referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges, and subject to all of the obligations of the Bank provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Loan Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Revolving Line Note shall be payable as provided in the Loan Agreement and in any event on July 31, 1997. Interest shall be payable on the outstanding daily unpaid principal amount of advances under the Revolving Line of Credit from the date first written above until payment in full and shall accrue and be payable at the rate and on the dates set forth in the Loan Agreement both before and after default and before and after maturity and judgment, with interest on overdue principal and interest to bear interest at the rate set forth in Section 4.9 of the Loan Agreement, to the fullest extent permitted by applicable law. 73 3 Each payment hereunder shall be made to the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles time) on the day of payment (which must be a Banking Day). All payments received after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed received on the next succeeding Banking Day. All payments shall be made in lawful money of the United States of America. The Bank shall use its best efforts to keep a record of advances under the Revolving Line of Credit made by it and payments received by it with respect to this Revolving Line Note, and, absent manifest error, such record shall be presumptive evidence of the amounts owing under this Revolving Line Note. The undersigned hereby promise to pay all costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements (including the allocated costs of in-house counsel), whether or not an action is filed in connection therewith. Subject to the provisions of the Loan Agreement, the undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable laws. This Revolving Line Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local laws thereof. ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC., a Delaware corporation a Delaware corporation By /s/ Allan J. Marrus By /s/ Tommy A. Poteet ------------------- ------------------- Allan J. Marrus Tommy A. Poteet President President By Stephen B. Delman By /s/ Stephen B. Delman ----------------- --------------------- Stephen B. Delman Stephen B. Delman Assistant Secretary Assistant Secretary 74 4 G.T. STYLING, INC., a California corporation By /s/ Jeffery J. Gati ------------------- Jeffery J. Gati President By /s/ Stephen B. Delman --------------------- Stephen B. Delman Assistant Secretary 75 EX-4.9.2 4 NON-REVOLVING LINE NOTE 1 EXHIBIT 4.9.2 76 2 NON-REVOLVING LINE NOTE $3,000,000 August 10, 1995 Los Angeles, California FOR VALUE RECEIVED, the undersigned promise to pay to the order of Sumitomo Bank of California (the "Bank"), the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000) or such lesser aggregate amount of advances under the Non-Revolving Line of Credit as may be made by the Bank pursuant to the Loan Agreement referred to below, together with interest on the principal amount of each advance under the Non-Revolving Line of Credit remaining unpaid from time to time from the date of each such advance under the Non-Revolving Line of Credit until the date of payment in full, payable as hereinafter set forth. Reference is made to the Commercial Loan Agreement dated as of even date herewith, by and among the undersigned, as Borrowers, and the Bank (the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is the Non-Revolving Line Note referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges, and subject to all of the obligations of the Bank provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Loan Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Non-Revolving Line Note shall be payable as provided in the Loan Agreement and in any event on July 31, 1996. Interest shall be payable on the outstanding daily unpaid principal amount of advances under the Non-Revolving Line of Credit from the date first written above until payment in full and shall accrue and be payable at the rate and on the dates set forth in the Loan Agreement both before and after default and before and after maturity and judgment, with interest on overdue principal and interest to bear interest at the rate set forth in Section 4.9 of the Loan Agreement, to the fullest extent permitted by applicable law. 77 3 Each payment hereunder shall be made to the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles time) on the day of payment (which must be a Banking Day). All payments received after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed received on the next succeeding Banking Day. All payments shall be made in lawful money of the United States of America. The Bank shall use its best efforts to keep a record of advances under the Non-Revolving Line of Credit made by it and payments received by it with respect to this Non-Revolving Line Note, and, absent manifest error, such record shall be presumptive evidence of the amounts owing under this Non-Revolving Line Note. The undersigned hereby promise to pay all costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements (including the allocated costs of in-house counsel), whether or not an action is filed in connection therewith. Subject to the provisions of the Loan Agreement, the undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable laws. This Non-Revolving Line Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local laws thereof. ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC., a Delaware corporation a Delaware corporation By /s/ Allan J. Marrus By /s/ Tommy A. Poteet ------------------- ------------------- Allan J. Marrus Tommy A. Poteet President President By /s/ Stephen B. Delman By /s/ Stephen B. Delman --------------------- --------------------- Stephen B. Delman Stephen B. Delman Assistant Secretary Assistant Secretary 78 4 G.T. STYLING, INC., a California corporation By /s/ Jeffery J. Gati ------------------- Jeffery J. Gati President By /s/ Stephen B. Delman --------------------- Stephen B. Delman Assistant Secretary 79 EX-4.9.3 5 SECURITY AGREEMENT 1 EXHIBIT 4.9.3 80 2 SECURITY AGREEMENT This SECURITY AGREEMENT ("Agreement"), dated as of August 10, 1995, is made by ARLEN AUTOMOTIVE, INC., a Delaware corporation, GRANT PRODUCTS, INC., a Delaware corporation and G.T. STYLING, INC., a California corporation (each a "Grantor", collectively, "Grantors"), in favor of SUMITOMO BANK OF CALIFORNIA ("Secured Party"), with reference to the following facts: RECITALS A. Pursuant to that certain Commercial Loan Agreement of even date herewith by and between Grantors, as Borrowers, and Secured Party (as such agreement may from time to time be supplemented, modified, amended, renewed, extended or supplanted, the "Loan Agreement"), Secured Party has agreed to extend certain credit facilities to Grantors. B. The Loan Agreement provides, as a condition precedent to Secured Party's obligation to extend credit facilities to Grantors, that Grantors shall grant to Secured Party a security interest in certain of its assets under the terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in order to induce Secured Party to continue to extend credit facilities to Grantors under the Loan Agreement, and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Grantor hereby represents, warrants, covenants, agrees, assigns and grants as follows: 1. Definitions. This Agreement is the Security Agreement referred to in the Loan Agreement and is one of the loan documents referred to therein. Terms defined in the Loan Agreement and not otherwise defined in this Agreement shall have the meanings given those terms in the Loan Agreement. Terms defined in the California Commercial Code and not otherwise defined in the Agreement or in the Loan Agreement shall have the meanings defined for those terms in the California Commercial Code. The following terms shall have the meanings respectively set forth after each: "Agreement" means this Security Agreement and any extensions, modifications, renewals, restatements, supplements or amendments hereof. "Collateral" means all present and future right, title and interest of Grantors in or to any property or 81 3 assets whatsoever, and all rights and powers of Grantors to transfer any interest in or to any property or assets whatsoever, including, without limitation, any and all of the following property: (1) All present and future accounts, accounts receivable, agreements, contracts, leases, contract rights, rights to payment, instruments, documents, chattel paper, security agreements, guaranties, undertakings, surety bonds, insurance policies, notes and drafts, and all forms of obligations owing to Grantors or in which Grantors may have any interest, however created or arising; (2) All present and future general intangibles, all tax refunds of every kind and nature to which Grantors now or hereafter may become entitled, however arising, all other refunds, and all deposits, goodwill, choses in action, trade secrets, computer programs, software, customer lists, trademarks, trade names, patents, licenses, copyrights, technology, processes, proprietary information, franchises and insurance proceeds; (3) All present and future deposit accounts of Grantors, including, without limitation, any demand, time, savings, passbook or like account maintained by Grantors with any bank, savings and loan association, credit union or like organization, and all money, cash and cash equivalents of Grantors, whether or not deposited in any such deposit account; (4) All present and future books and records, including, without limitation, books of account and ledgers of every kind and nature, all electronically recorded data relating to Grantors or the business thereof, all receptacles and containers for such records, and all files and correspondence; (5) All present and future goods, including, without limitation, all consumer goods, farm products, inventory, equipment, machinery, tools, molds, dies, furniture, furnishings, fixtures, trade fixtures, motor vehicles and all other goods used in connection with or in the conduct of Grantors' businesses, including without limitation, all goods as defined in Section 9109(2) of the California Commercial Code; (6) All present and future inventory and merchandise, including, without limitation, all present and future goods held for sale or lease or to 82 4 be furnished under a contract of service, all raw materials, work in process and finished goods, all packing materials, supplies and containers relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts or documents of title relating to any of the foregoing; (7) All present and future accessions, appurtenances, components, repairs, repair parts, spare parts, replacements, substitutions, additions, issue and/or improvements to or of or with respect to any of the foregoing; (8) All other tangible and intangible property of Grantors; (9) All rights, remedies, powers and/or privileges of Grantors with respect to any of the foregoing; and (10) Any and all proceeds and products of any of the foregoing, including, without limitation, all money, accounts, general intangibles, deposit accounts, documents, instruments, chattel paper, goods, insurance proceeds, and any other tangible or intangible property received upon the sale or disposition of any of the foregoing. "Loan Documents" means collectively, the Loan Agreement, the Revolving Line Note, the Non-Revolving Line Note and the Term Note, this Agreement, the Pledge Agreement, and any other certificates, documents or agreements of any type or nature heretofore or hereafter executed and delivered by any Grantor to Bank in any way relating to or in furtherance of the Loan Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. "Notes" means collectively, the Revolving Line Note, the Non-Revolving Line Note and the Term Note. "Person" means and includes any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. 2. Security Agreement. For valuable consideration, Grantors hereby grant and assign to Secured Party a security interest in all of the Collateral now or hereafter owned by Grantors as security for the timely payment and performance of the obligations of Grantors under the Loan Agreement and other 83 5 Loan Documents, including but not limited to the Notes (collectively, the "Obligations"). This Agreement is a continuing agreement and all the rights, powers and remedies hereunder shall apply to any and all Obligations, including those arising under successive transactions which shall either continue the Obligations, increase or decrease them, or from time to time create new Obligations after all or any prior Obligations have been satisfied, and notwithstanding the bankruptcy of any Grantor or any other party to the Loan Agreement and related documents or any other event or proceeding affecting any of the aforementioned persons. 3. Further Assurances. At any time and from time to time at the request of Secured Party, Grantors shall execute and deliver to Secured Party all such financing statements and other instruments and documents in form and substance reasonably satisfactory to Secured Party, as shall be necessary or reasonably desirable to fully perfect, when filed and/or recorded, Secured Party's security interest granted pursuant to Section 2 of this Agreement. At any time and from time to time, Secured Party shall be entitled to file and/or record any or all such financing statements, instruments and documents held by it, and any or all such further financing statements, documents and instruments, and to take all such other actions, as Secured Party may deem appropriate to perfect and to maintain perfected the security interest granted in Section 2 of this Agreement. Before and after the occurrence of any Event of Default, at Secured Party's request, Grantors shall execute all such further financing statements, instruments and documents, and shall do all such further acts and things, as may be deemed necessary or reasonably desirable by Secured Party to create and perfect, and to continue and preserve, the security interest in the Collateral in favor of Secured Party, or the priority thereof. With respect to any Collateral consisting of instruments, documents, certificates of title or the like, as to which Secured Party's security interest is required to be perfected by, or the priority thereof is required to be assured by, possession of or notation on the certificate of title pertaining to such Collateral, Grantors will upon demand of Secured Party deliver possession of same in pledge to Secured Party, or note the lien on such certificate of title in favor of Secured Party for the benefit of Secured Party. 4. Grantors' Representations, Warranties and Agreements. Except as otherwise disclosed to Secured Party in writing concurrently herewith, Grantors represent, warrant and agree that: (a) the security interests granted in Section 2 of this Agreement are first priority security interests in the Collateral indefeasible by any third party; (b) except for financing statements in favor of Secured Party and as otherwise disclosed to Secured Party in writing, no financing statement 84 6 covering any of the Collateral or the proceeds thereof is on file in any public office or held by any person; (c) Grantors have and will continue to have, except for security interests granted pursuant to the Loan Agreement and related documents in favor of Secured Party and except for such other liens as are permitted pursuant to the Loan Agreement, full title to the Collateral, free from any lien, security interest, encumbrance or claim, and full power and authority to grant to Secured Party the security interest in the Collateral as provided herein subject to the Permitted Encumbrances, and will, at its sole cost and expense, defend any action which might materially affect the Collateral or Secured Party's security interest in the Collateral; (d) Grantors will pay, prior to delinquency, all taxes, charges, liens and assessments against the Collateral, unless such taxes, charges, liens or assessments are not yet required to be paid, and upon its failure to pay or so contest such taxes, charges, liens and assessments, Secured Party at its option may pay any of them, and Secured Party shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same; (e) the Collateral will not be used for any unlawful purpose or in violation of any law, regulation or ordinance, nor used in any way that will void or impair any insurance required to be carried in connection therewith; (f) Grantors will, to the extent consistent with good business practice, keep the Collateral in reasonably good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto and, as appropriate and applicable, will otherwise deal with such portion of the Collateral in all such ways as are considered good practice by owners of like property; (g) Grantors will take all reasonable steps to preserve and protect the Collateral; (h) Grantors will maintain, with responsible insurance companies, insurance covering the Collateral against such insurable losses as is required by the Loan Agreement and will cause Secured Party to be designated as loss payee with respect to such insurance, will obtain the written agreement of the insurers that such insurance shall not be cancelled without at least ten (10) days prior written notice to Secured Party, and will furnish copies of such insurance policies or certificates to Secured Party promptly upon request therefor; (i) Grantors will promptly notify Secured Party in writing in the event of any substantial or material damage to the Collateral from any source whatsoever, and, except for the disposition of collections and other proceeds of the Collateral permitted by Section 6 hereof, Grantors will not remove or permit to be removed any part of the Collateral from its places of business without the prior written consent of Secured Party, except for such items of the Collateral as are removed in the ordinary course of business or in connection with any transaction or disposition otherwise permitted by the Loan Agreement; and 85 7 (j) no Grantor will move its principal place of business without giving at least ten (10) days' notice to Secured Party. 5. Secured Party's Rights Regarding Collateral. At any time (whether or not an Event of Default has occurred, except as provided in clause (b) below), without notice or demand and at the expense of Grantors, Secured Party may, to the extent it may be necessary or desirable to protect the security hereunder, but Secured Party shall not be obligated to: (a) enter upon any premises on which Collateral is situated and examine the same or (b) after an Event of Default has occurred and is continuing, perform any obligation of Grantors under this Agreement or any obligation of any other party under the Loan Documents. At any time and from time to time (except as provided in clause (iii) below), at the expense of Grantors, Secured Party may to the extent it may be necessary or desirable to protect the security hereunder, but Secured Party shall not be obligated to: (i) notify obligors on the Collateral that the Collateral has been assigned to Secured Party; (ii) at any time and from time to time request from obligors on the Collateral, in the name of Grantors or in the name of Secured Party, information concerning the Collateral and the amounts owing thereon; and (iii) after an Event of Default has occurred and is continuing, cause the Collateral to be registered in the name of Secured Party, as legal owner. Grantors shall maintain books and records pertaining to the Collateral in such detail, form and scope as Secured Party shall reasonably require consistent with Secured Party's interests hereunder. Grantors will at any time at Secured Party's request mark the Collateral and/or Grantors' ledger cards, books of account, and other records relating to the Collateral with appropriate notations satisfactory to Secured Party disclosing that they are subject to Secured Party's security interests. Secured Party shall at all times on notice have full access to and the right to audit any and all of Grantors' books and records pertaining to the Collateral, and to confirm and verify the value of the Collateral and to do whatever else Secured Party may deem necessary or desirable to protect its interests. Secured Party shall be under no duty or obligation whatsoever to take any action to preserve any rights of or against any prior or other parties in connection with the Collateral, or make or give any presentments, demands for performance, notices of non-performance, protests, notices of protests, notices of dishonor, or notices of any other nature whatsoever in connection with the Collateral or the Obligations. Secured Party shall be under no duty or obligation whatsoever to take any action to protect or preserve the Collateral or any rights of Grantors therein, or to make collections or enforce payment thereon, or to participate in any foreclosure or other proceeding in connection therewith. 86 8 6. Collections on the Collateral. Grantors shall have the right to use and to continue to make collections on and receive other proceeds of all of the Collateral in the ordinary course of business so long as no Event of Default shall have occurred and be continuing. Upon the occurrence of an Event of Default, at the option of Secured Party, Grantors' right to make collections on and receive proceeds of the Collateral and to use or dispose of such collections and proceeds shall terminate, and any and all proceeds and collections, including all partial or total prepayments, then held or thereafter received on or on account of the Collateral will be held or received by Grantors in trust for Secured Party and immediately delivered to same. Any remittance received by Grantors from customers shall be presumed to relate to the Collateral and to be subject to the Secured Party's security interests. Upon the occurrence of an Event of Default, Secured Party shall have the right at all times to receive, receipt for, endorse, assign, deposit and deliver, in the name of Secured Party or in the name of Grantors, any and all checks, notes, drafts and other instruments for the payment of money constituting proceeds of or otherwise relating to the Collateral; and each Grantor hereby authorizes Secured Party to affix, by facsimile signature or otherwise, the general or special endorsement of it, in such manner as Secured Party shall deem advisable, to any such instrument in the event the same has been delivered to or obtained by Secured Party without appropriate endorsement, and Secured Party and any collecting bank are hereby authorized to consider such endorsement to be a sufficient, valid and effective endorsement by such Grantor, to the same extent as though it were manually executed by the duly authorized officer of such Grantor, regardless of by whom or under what circumstances or by what authority such facsimile signature or other endorsement actually is affixed, without duty of inquiry or responsibility as to such matters, and Grantors hereby expressly waives demand, presentment, protest and notice of protest or dishonor and all other notices of every kind and nature with respect to any such instrument. 7. Possession of Collateral by Secured Party. All the Collateral now, heretofore or hereafter delivered to Secured Party shall be held by Secured Party in its possession, custody and control. Any or all of the Collateral consisting of money delivered to Secured Party shall be held in an interest bearing account, and prior to an Event of Default, interest thereon shall accrue to Grantors; however, Grantors shall not be entitled to any other compensation thereon or by reason of Secured Party's possession and/or use thereof. Upon the occurrence of an Event of Default, whenever any of the Collateral is in Secured Party's possession, Secured Party may use, operate and consume the Collateral, whether for the purpose of preserving and/or protecting the Collateral, or for the purpose of performing any of Grantors' obligations with 87 9 respect thereto, or otherwise. Secured Party may at any time deliver or redeliver the Collateral or any part thereof to Grantors, and the receipt of any of the same by Grantors shall be complete and full acquittance for the Collateral so delivered, and Secured Party thereafter shall be discharged from any liability or responsibility therefor. So long as Secured Party exercises reasonable care with respect to any Collateral in its possession, custody or control, Secured Party shall have no liability for any loss of or damage to such Collateral, and in no event shall Secured Party have liability for any diminution in value of Collateral occasioned by economic or market conditions or events. Secured Party shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Collateral in the possession, custody or control of Secured Party is accorded treatment substantially equal to that which Secured Party accords its own similar property, it being understood that Secured Party shall not have any responsibility for taking any necessary steps to preserve rights against any Person with respect to any Collateral. 8. Events of Default. There shall be an Event of Default hereunder upon the occurrence of an Event of Default under the Loan Agreement. 9. Remedies. 9.1 Rights Upon Event of Default. Upon the occurrence of an Event of Default, Secured Party shall have in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies which Secured Party may have under applicable law or in equity or under this Agreement (including, without limitation, all rights set forth in Section 6 hereof) or under any other Loan Document, all of its rights and remedies as a secured party under the Uniform Commercial Code as enacted in any jurisdiction, and in addition the following rights and remedies, all of which may be exercised to the maximum extent permitted by law with or without further notice to Grantors and without affecting the liability of Grantors hereunder or the enforceability of the security interests created hereby: (a) to foreclose the liens and security interests created hereunder or under any other agreement relating to any Collateral by any available judicial procedure or without judicial process; (b) to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same; (c) to sell, assign, lease or otherwise dispose of any Collateral or any part thereof, either at public or private sale or at any broker's board, in lot or in bulk, for cash, on credit or otherwise, with or without representations or warranties and upon such terms as shall be acceptable to Secured Party; (d) to notify obligors on the Collateral that the Collateral has been 88 10 assigned to Secured Party and that all payments thereon are to be made directly and exclusively to Secured Party; (e) to collect by legal proceedings or otherwise all interest, principal or other sums now or hereafter payable upon or on account of the Collateral; (f) to enter into any extension, reorganization, deposit, merger or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith, Secured Party may deposit or surrender control of the Collateral and/or accept other property in exchange for the Collateral; (g) to settle, compromise or release, on terms acceptable to Secured Party, in whole or in part, any amounts owing on the Collateral; (h) to extend the time of payment, make allowances and adjustments and issue credits in connection with the Collateral in the name of Secured Party or in the name of Grantors; (i) to enforce payment and prosecute any action or proceeding with respect to any or all of the Collateral and take or bring, in the name of Secured Party or in the name of Grantors, steps, actions, suits or proceedings deemed by Secured Party necessary or desirable to effect collection of or to realize upon the Collateral, including any judicial or nonjudicial foreclosure thereof or thereon, and Grantors specifically consents to any nonjudicial foreclosure of any or all of the Collateral or any other action taken by Secured Party which may release any obligor from personal liability on any of the Collateral, and each Grantor waives any right not expressly provided for in this Agreement to receive notice of any public or private judicial or nonjudicial sale or foreclosure of any security or any of the Collateral; and any money or other property received by Secured Party in exchange for or on account of the Collateral, whether representing collections or proceeds of Collateral, and whether resulting from voluntary payments or foreclosure proceedings or other legal action taken by Secured Party or Grantors shall be applied by Secured Party without notice to Grantors to the Obligation(s) in the order and manner as is provided for in the Loan Agreement or, if no such provision is applicable, in such order and manner as Secured Party in its sole discretion shall determine; (j) to insure, process and preserve the Collateral; (k) to exercise all rights under any of the Loan Documents; (l) to remove from any premises where the same may be located, the Collateral and any and all documents, instruments, files and records, and any receptacles and cabinets containing the same, relating to the Collateral, and Secured Party may, at the cost and expense of Grantors, use such of its supplies and space at its places of business as may be necessary to properly administer and control the portion of the Collateral owned by it or the handling of collections and realizations thereon; (m) to receive, open and dispose of all mail addressed to Grantors and notify postal authorities to change the address for delivery thereof to such address as Secured Party may designate; provided that Secured Party agrees that it will promptly deliver over to Grantors such opened mail as does not 89 11 relate to the Collateral; and (n) to exercise all other rights, powers and remedies of an owner of the Collateral; all at Secured Party's sole option and as Secured Party in its sole discretion may deem advisable. Grantors will, at Secured Party's request, assemble all Collateral and make it available to Secured Party at places which Secured Party may designate, whether at the premises of Grantors or elsewhere, and will make available to Secured Party all premises and facilities of Grantors for the purpose of Secured Party's taking possession of the Collateral or removing or putting the Collateral in salable form. 9.2 Possession by Secured Party. Upon the occurrence of an Event of Default, Secured Party also shall have the right, without notice or demand, either in person, by agent or by a receiver to be appointed by a court (and Grantors hereby expressly consent to the appointment of such a receiver), and without regard to the adequacy of any security for the Obligations, to take possession of the Collateral or any part thereof and to collect and receive the rents, issues, profits, income and proceeds thereof. Taking possession of the Collateral shall not cure or waive any Event of Default or notice thereof or invalidate any act done pursuant to such notice. The rights, remedies and powers of any receiver appointed by a court shall be as ordered by said court. 9.3 Sale of Collateral. Any public or private sale or other disposition of the Collateral may be held at any office of Secured Party, or at Grantors' places of business, or at any other place permitted by applicable law, and without the necessity of the Collateral's being within the view of prospective purchasers. Secured Party may direct the order and manner of sale of the Collateral, or portions thereof, as it in its sole and absolute discretion may determine. Secured Party or any Person on Secured Party's behalf may bid and purchase at any such sale or other disposition. 9.4 Notice of Sale. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will send or otherwise make available to Grantors reasonable notice of the time and place of any public sale thereof or of the time on or after which any private sale or other disposition thereof is to be made. The requirement of sending reasonable notice conclusively shall be met if such notice is mailed, first class mail, postage prepaid, to Grantors at the address set forth in the Loan Agreement at least five (5) days before the time of the sale or disposition. Grantor expressly waive any right to receive notice of any public or private sale of any Collateral or other security for the Obligation(s) except as expressly provided for in the preceding sentence. 90 12 9.5 Title of Purchasers. Upon consummation of any sale of Collateral hereunder, Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the Collateral so sold absolutely free from any claim or right upon the part of Grantors or any other person claiming through Grantors, and Grantors hereby waive (to the extent permitted by law) all rights of redemption, stay and appraisal which they now have or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Collateral is made on credit or for future delivery, Secured Party shall not be required to apply any portion of the sale price to the Obligations until such amount is actually received by Secured Party, and any Collateral so sold may be retained by Secured Party until the sale price is paid in full by the purchaser or purchasers thereof. Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Collateral so sold, and, in case of any such failure, the Collateral may be sold again. 10. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably nominates and appoints Secured Party as its attorney-in-fact for the following purposes: (a) to do all acts and things which Secured Party may deem necessary or advisable to perfect and continue perfected the security interests created by this Agreement and, upon the occurrence of an Event of Default, to preserve, process, develop, maintain and protect the Collateral; (b) to prepare, sign, file and/or record, for such Grantor in the name of such Grantor, any financing statement, application for registration, and like papers and to take any other action deemed by Secured Party necessary or desirable in order to perfect the security interests granted hereby; (c) to execute any and all papers and instruments and do all other things necessary or desirable to preserve and protect the Collateral and to protect Secured Party's security interests therein; and (d) upon the occurrence of an Event of Default, to do any and every act which such Grantor is obligated to do under this Agreement, at the expense of such Grantor; provided, however, that Secured Party shall be under no obligation whatsoever to take any of the foregoing actions, and absent bad faith or actual malice, Secured Party shall have no liability or responsibility for any act or omission taken with respect thereto. 11. Costs and Expenses. Grantors agree to pay to Secured Party all costs and expenses (including without limitation reasonable attorneys' fees and disbursements, including the allocated costs of in-house counsel) incurred by Secured Party in the enforcement of this Agreement with regard to the Collateral owned by it, whether or not an action is filed in 91 13 connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All advances, charges, costs and expenses, including reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy conferred by this Agreement (including without limitation the right to perform any Obligation of Grantor under the Loan Documents), or in the enforcement thereof, shall be secured hereby and shall become a part of the Obligations and shall be paid to Secured Party by Grantors, immediately upon demand, together with interest thereon at the rate(s) provided for under the Loan Agreement. 12. Statute of Limitations and Other Laws. Until the Obligations shall have been paid and performed in full, the power of sale and all other rights, powers and remedies granted to Secured Party hereunder shall continue to exist and may be exercised by Secured Party at any time and from time to time irrespective of the fact that any of the Obligations may have become barred by any statute of limitations. Grantors expressly waive the benefit of any and all statutes of limitation, laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure to the maximum extent permitted by applicable law. 13. Other Agreements. Nothing herein shall in any way modify or limit the effect of terms or conditions set forth in any other security or other agreement executed by Grantors or in connection with the Obligations, but each and every term and condition hereof shall be in addition thereto. 14. Liens on Real Property. In the event that all or any part of the Obligations at any time are secured by any one or more deeds of trust or mortgages or other instruments creating or granting liens on any interest in real property, Grantors authorize Secured Party, upon the occurrence of any Event of Default, at the sole option of Secured Party, without notice or demand and without affecting any Obligations of Grantors, the enforceability of this Agreement, or the validity or enforceability of any liens of Secured Party on any Collateral, to foreclose any or all of such deeds of trust or mortgages or other instruments by judicial or nonjudicial sale. Grantors expressly waive any defenses to the enforcement of this Agreement or any liens created or granted hereby or to the recovery by Secured Party against any guarantor or any other Person liable therefor of any deficiency after a judicial or nonjudicial foreclosure or sale. Grantors expressly waive any defenses or benefits that may be derived from California Code of Civil Procedure Section Section 580a, 580b, 580d or 726, or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses it otherwise might or would have under California law or other applicable law. 92 14 15. Understandings With Respect to Waivers and Consents. Grantors warrant and agree that each of the waivers and consents set forth herein are made with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which Grantors otherwise may have against Secured Party or others, or against any Collateral. If any of the waivers or consents herein are determined to be unenforceable under applicable law, such waivers and consents shall be effective to the maximum extent permitted by law. 16. Governing Law. This Agreement shall be governed and construed in accordance with the Laws of the State of California. IN WITNESS WHEREOF, Grantors have executed this Agreement by its duly authorized officers as of the date first written above. "Grantors": ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC., a Delaware corporation a Delaware corporation By /s/ Allan J. Marrus By /s/ Tommy A. Poteet ------------------- ------------------- Allan J. Marrus Tommy A. Poteet President President By /s/ Stephen B. Delman By /s/ Stephen B. Delman --------------------- --------------------- Stephen B. Delman Stephen B. Delman Assistant Secretary Assistant Secretary G.T. STYLING, INC., a California corporation By /s/ Jeffery J. Gati ------------------- Jeffery J. Gati President By /s/ Stephen B. Delman --------------------- Stephen B. Delman Assistant Secretary 93 EX-4.9.4 6 PLEDGE AGREEMENT 1 EXHIBIT 4.9.4 94 2 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Agreement"), dated as of August 10, 1995, is made by ARLEN AUTOMOTIVE, INC., a Delaware corporation ("Grantor"), in favor of SUMITOMO BANK OF CALIFORNIA ("Secured Party"), with reference to the following facts: RECITALS A. Pursuant to a Commercial Loan Agreement of even date herewith, by and among Grantor, Grant Products, Inc., a Delaware corporation ("Grant"), and G.T. Styling, Inc., a California corporation ("G.T.") (each a "Borrower" and, collectively, "Borrowers") and Secured Party (as the same may from time to time be supplemented, modified, amended, replaced or supplemented the "Loan Agreement") and the related documents, Secured Party has agreed to extend credit facilities to Borrowers. Borrowers will borrow up to ELEVEN MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS ($11,550,000), as evidenced by the Revolving Line Note, the Non-Revolving Line Note and the Term Note and other agreements executed by Borrowers in favor of Bank. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement. B. Grantor is the owner of 100% of the issued and outstanding capital stock of Grant and G.T. C. As a condition to the extension of credit to Borrowers by Secured Party and to induce Secured Party to continue to extend credit to Borrowers, Grantor has agreed to the terms and conditions contained herein and to allow certain collateral to be used as security for the payment and performance of certain obligations of Borrowers to Secured Party. AGREEMENT NOW, THEREFORE, in order to induce Secured Party to extend credit facilities to Borrowers under the Loan Agreement, and for other good and valuable consideration, the receipt and adequacy of which hereby is acknowledged, Grantor hereby represents, warrants, covenants, agrees, and pledges as follows: 1. Definitions. Terms defined in the Loan Agreement and not otherwise defined in this Agreement shall have the meanings given those terms in the Loan Agreement as though set forth 95 3 herein in full. The following terms shall have the meanings respectively set forth after each: "Agreement" means this Pledge Agreement and any extensions, modifications, renewals, restatements, supplements or amendments thereof. "Certificates" means and includes all certificates, instruments or other documents now or hereafter representing or evidencing any Pledged Securities. "Grantor" means Arlen Automotive, Inc., a Delaware corporation. "Obligations" means and includes all loans, advances, debts, liabilities, obligations or any other financial accommodations, howsoever arising, owing by Borrowers to Secured Party of every kind and description (whether or not evidenced by a note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of the Loan Agreement and all documents executed in connection therewith, including, without limitation, all interest, fees, charges, expenses, reasonable attorneys' fees and accountants' fees chargeable to Borrowers or incurred by Secured Party in connection with its dealings with Borrowers. "Person" means and includes any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Pledged Collateral" means (i) the Pledged Securities and the Certificates representing or evidencing same, (ii) any other property of Grantor from time to time delivered to Secured Party pursuant to a writing which designates the same as "Pledged Collateral" under this Agreement and (iii) any and all proceeds and products of any of the foregoing, and any and all collections, dividends (whether in cash, stock or otherwise), distributions, redemption payments or liquidation payments with respect to any of the foregoing. "Pledged Securities" means (i) any and all shares of capital stock owned or hereafter acquired by Grantor in Grant and G.T. (the "Pledged Companies"), (ii) any and all securities now or hereafter issued in substitution, exchange or replacement therefor, or with respect thereto, (iii) any and all warrants, options or other rights to subscribe to or acquire any additional capital stock of 96 4 the Pledged Companies owned by Grantor, and (iv) any and all additional capital stock of the Pledged Companies owned by Grantor. 2. Creation of Security Interest. 2.1 Pledge of Pledged Collateral. Grantor hereby pledges to Secured Party and grants to Secured Party a security interest in and to all Pledged Collateral for the benefit of Secured Party, together with all products, proceeds, dividends, redemption payments, liquidation payments, cash, instruments and other property, and any and all rights, titles, interests, privileges, benefits and preferences appertaining or incidental to the Pledged Collateral, provided, however, that the pledge of the stock of Grant shall not take effect until the release of the lien of Bank Leumi Trust Company of New York in said stock, pursuant to the Subordination Agreement required under Section 5.1(n) of the Loan Agreement. The security interest and pledge created by this Section 2.1 shall continue in effect so long as any Obligations are owed to Secured Party or any commitment to extend credit to Grantor remains outstanding from Secured Party. 2.2 Delivery of Certain Pledged Collateral. On or before the execution hereof, Grantor shall cause to be pledged and delivered to Secured Party the Certificates evidencing One Hundred percent (100%) of the capital stock of the Pledged Companies. At any time after the date hereof, additional Pledged Collateral may from time to time be delivered to Secured Party by agreement between Secured Party and Grantor. All Certificates at any time delivered to Secured Party shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Secured Party shall hold all Certificates pledged hereunder pursuant to this Agreement unless and until released in accordance with Section 2.3 of this Agreement. 2.3 Release of Pledged Collateral. Pledged Collateral that is required to be released from the pledge and security interest created by this Agreement in order to permit Grantor to consummate any disposition of stock or assets, merger, consolidation, amalgamation, investment, acquisition, dividend or distribution that does not violate the terms of the Loan Agreement, if any, shall be so released by Secured Party at such times and to the extent necessary to permit Grantor to consummate such permitted transactions promptly following Secured Party's receipt of written request therefor by Grantor and the Pledged Companies specifying the purpose for which release is requested and such further certificates or other documents as Secured Party reasonably shall request in its discretion to confirm that Grantor is permitted to consummate 97 5 such permitted transaction and to confirm Secured Party's replacement lien on appropriate collateral. 3. Security for Obligations. This Agreement and the pledge and security interests granted herein secure the prompt payment, in full in cash, and full performance of, all Obligations, whether for principal, interest, fees, expenses or otherwise, including, without limitation, all Obligations of Grantor now or hereafter existing under this Agreement, and all interest that accrues on all or any part of any of the Obligations after the filing of any petition or pleading against Grantor, any one of the Borrowers, the Pledged Companies or any other Person for a proceeding under any bankruptcy or debtor relief law. 4. Covenants. In accordance with the terms of the Loan Agreement, Grantor hereby agrees that Grantor shall not, without Secured Party's prior written consent, transfer all or any portion or its ownership interest in the Pledged Companies to any Person other than Secured Party. 5. Further Assurances. Grantor agrees that at any time, and from time to time, at its own expense Grantor will promptly execute, deliver and file or record all further financing statements, instruments and documents, and will take all fur-ther actions, including, without limitation, causing the Pledged Companies to so execute, deliver, file or take other actions, that may be necessary or desirable, or that Secured Party reasonably may request, in order to perfect and protect any pledge or security interest granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral and to preserve, protect and maintain the Pledged Collateral and the value thereof, including, without limitation, payment of all taxes, assessments and other charges imposed on or relating to the Pledged Collateral. Grantor hereby consents and agrees that the issuers of, or obligors on, the Pledged Collateral, or any registrar or transfer agent or trustee for any of the Pledged Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of Secured Party to effect any transfer or exercise any right hereunder, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Grantor or any other Person to such issuers or such obligors or to any such registrar or transfer agent or trustee. 98 6 6. Voting Rights; Dividends; etc. So long as no Event of Default under the Loan Agreement occurs and remains continuing: 6.1 Voting Rights. Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities, or any part thereof, for any purpose not prohibited by the terms of this Agreement, the Loan Agreement, or the other documents executed in connection therewith; provided, however, that Grantor shall not exercise, or shall refrain from exercising, any such right if it would result in an Event of Default. 6.2 Dividend and Distribution Rights. Grantor shall be entitled to receive and to retain and use any and all dividends or distributions paid in respect of the Pledged Securities; provided, however, that any and all such dividends or distributions received in the form of capital stock shall be, and the Certificates representing such capital stock forthwith shall be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Grantor, be received in trust for the benefit of Secured Party, be segregated from the other property of Grantor, and forthwith be delivered to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). 7. Rights During Event of Default. When an Event of Default has occurred and is continuing: 7.1 Voting, Dividend, and Distribution Rights. At the option of Secured Party, all rights of Grantor to exercise the voting and other consensual rights which Grantor would otherwise be entitled to exercise pursuant to Section 6.1 above, and to receive the dividends and distributions which it would otherwise be authorized to receive and retain pursuant to Section 6.2 above, shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and to hold as Pledged Collateral such dividends and distributions. Secured Party shall give notice to Grantor of its election to exercise voting rights with respect to the Pledged Collateral; provided, however, that (i) neither the giving of such notice nor the receipt thereof by Grantor shall be a condition to exercise of any rights of Secured Party hereunder, and (ii) Secured Party shall incur no liability for failing to give such notice. 7.2 Dividends and Distributions Held in Trust. All dividends and other distributions which are received by Grantor contrary to the provisions of this Agreement shall be received in trust for the benefit of Secured Party, shall be segregated 99 7 from other funds of Grantor, and forthwith shall be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). 7.3 Irrevocable Proxy. Grantor hereby revokes all previous proxies with regard to the Pledged Securities and appoints Secured Party as its proxyholder to attend and vote at any and all meetings of the shareholders of the corporations which issued the Pledged Securities, and any adjournments thereof, held on or after the date of the giving of this proxy and prior to the termination of this proxy and to execute any and all written consents of shareholders of such corporations executed on or after the date of the giving of this proxy and prior to the termination of this proxy, with the same effect as if Grantor had personally attended the meetings or had personally voted its shares or had personally signed the written consents; provided, however, that the proxyholder shall have rights hereunder only upon the occurrence and during the continuance of an Event of Default under the Loan Agreement and only when so elected by Secured Party. Grantor hereby authorizes Secured Party to substitute another person as the proxyholder and, upon the occurrence or during the continuance of any Event of Default, hereby authorizes and directs the proxyholder to file this proxy and the substitution instrument with the secretary of the appropriate corporation. This proxy is coupled with an interest and is irrevocable until such time as no commitment to extend credit to Grantor remains outstanding from Secured Party and until such time as all Obligations have been paid and performed in full. 8. Transfers and Other Liens. Grantor agrees that, except as specifically permitted under the Loan Agreement or the other documents executed in connection therewith, Grantor will not (i) sell, assign, exchange, transfer or otherwise dispose of, or contract to sell, assign, exchange, transfer or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or permit to exist any lien upon or with respect to any of the Pledged Collateral, except for liens in favor of Secured Party, or (iii) take any action with respect to the Pledged Collateral which is prohibited by the provisions or purposes of this Agreement or the Loan Agreement. 9. Secured Party Appointed Attorney-in-Fact. Grantor hereby irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor, and in the name of Grantor, or otherwise, from time to time, in Secured Party's sole and absolute discretion to do any of the following acts or things: (a) to do all acts and things and to execute all documents necessary or advisable to perfect and continue perfected the security interests created by this Agreement and to preserve, maintain and protect the Pledged 100 8 Collateral; (b) to do any and every act which Grantor is obligated to do under this Agreement; (c) to prepare, sign, file and record, in Grantor's name, any financing statement covering the Pledged Collateral; and (d) to endorse and transfer the Pledged Collateral upon foreclosure by Secured Party; provided, however, that Secured Party shall be under no obligation whatsoever to take any of the foregoing actions, and Secured Party shall have no liability or responsibility for any act (other than Secured Party's own gross negligence or willful misconduct) or omission taken with respect thereto. Grantor hereby agrees to repay immediately upon demand all reasonable costs and expenses incurred or expended by Secured Party in exercising any right or taking any action under this Agreement, together with interest as provided for in the Loan Agreement. 10. Secured Party May Perform Obligations: If Grantor fails to perform any Obligation contained herein, Secured Party may, but without any obligation to do so and without notice to or demand upon Grantor, perform the same and take such other action as Secured Party may deem necessary or desirable to protect the Pledged Collateral or Secured Party's security interests therein, Secured Party being hereby authorized (without limiting the general nature of the authority hereinabove conferred) to pay, purchase, contest and compromise any lien which in the reasonable judgment of Secured Party appears to be prior or superior to Secured Party's security interests, and in exercising any such powers and authority to pay necessary expense, employ counsel and pay reasonable attorneys' fees. Grantor hereby agrees to repay immediately upon demand all sums so expended by Secured Party, together with interest from the date of expenditure at the rates provided for in the Loan Agreement. Secured Party shall not be under any duty or obligation to (i) preserve, maintain or protect the Pledged Collateral or any of any Grantor's rights or interest therein, (ii) exercise any voting rights with respect to the Pledged Collateral, whether or not an Event of Default has occurred or is continuing, or (iii) make or give any notices of default, presentments, demands for performance, notices of nonperformance or dishonor, protests, notices of protest or notice of any other nature whatsoever in connection with the Pledged Collateral on behalf of Grantor or any other Person having any interest therein; and Secured Party does not assume and shall not be obligated to perform the obligations of Grantor, if any, with respect to the Pledged Collateral. 11. Reasonable Care. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially similar to that which Secured Party accords its own property, it being under-stood that Secured Party shall not have any responsibility for (i) ascertaining or taking action with respect to calls, con- 101 9 versions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. 12. Events of Default and Remedies. 12.1 Rights Upon Event of Default. Upon the occurrence and during the continuance of an Event of Default, Grantor shall be in default hereunder and Secured Party shall have in any jurisdiction where enforcement is sought, in addition to all other rights and remedies that Secured Party may have under this Agreement and under applicable law or in equity, all of its rights and remedies as a secured party under the Uniform Commercial Code as enacted in any such jurisdiction, and in addition the following rights and remedies, all of which may be exercised with or without further notice to Grantor: (a) to notify any issuer of any Pledged Securities, and any and all other obligors on any Pledged Collateral, that the same has been pledged to Secured Party and that all dividends and other payments thereon are to be made directly and exclusively to Secured Party; to renew, extend, modify, amend, accelerate, accept partial payments on, make allowances and adjustments and issue credits with respect to, release, settle, compromise, compound, collect or otherwise liquidate, on terms acceptable to Secured Party, in whole or in part, the Pledged Collateral and any amounts owing thereon or any guaranty or security therefor; to enter into any other agreement relating to or affecting the Pledged Collateral; and to give all consents, waivers and ratifications with respect to the Pledged Collateral and exercise all other rights (including voting rights), powers and remedies and otherwise act with respect thereto as if Secured Party were the owner thereof; (b) to enforce payment and prosecute any action or proceeding with respect to any and all of the Pledged Collateral and take or bring, in Secured Parties' names or in the name of Grantor, all steps, actions, suits or proceedings deemed by Secured Party necessary or desirable to effect collection of or to realize upon the Pledged Collateral; (c) in accordance with applicable law, to take possession of the Pledged Collateral with or without judicial process; (d) to endorse, in the name of Grantor, all checks, notes, drafts, money orders, instruments and other evidences of payment relating to the Pledged Collateral; 102 10 (e) to transfer any or all of the Pledged Collateral into the name of Secured Party or its nominee or nominees; and (f) in accordance with applicable law, to foreclose the liens and security interests created under this Agreement or under any other agreement relating to the Pledged Collateral by any available judicial procedure or without judicial process, and to sell, assign or otherwise dispose of the Pledged Collateral or any part thereof, either at public or private sale or at any broker's board or securities exchange, in lots or in bulk, for cash, on credit or on future delivery, or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to Secured Party; all at the sole option of and in the sole discretion of Secured Party. 12.2 Notice of Sale. Secured Party shall give Grantor at least five (5) days' written notice of sale of all or any part of the Pledged Collateral. Any sale of the Pledged Collateral shall be held at such time or times and at such place or places as Secured Party may determine in the exercise of its sole and absolute discretion. Secured Party may bid (which bid may be, in whole or in part, in the form of cancellation of Obligations) for and purchase for the account of Secured Party or any nominee of Secured Party the whole or any part of the Pledged Collateral. Secured Party shall not be obligated to make any sale of the Pledged Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Pledged Collateral may have been given. Secured Party may, without notice or publication, adjourn the sale from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. 12.3 Private Sales. Whether or not any of the Pledged Collateral has been effectively registered under the Securities Act of 1933 or other applicable laws, Secured Party may, in its sole and absolute discretion, sell all or any part of the Pledged Collateral at private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable in order that the sale may be lawfully conducted. Without limiting the foregoing, Secured Party may (i) approach and negotiate with a limited number of potential purchasers, and (ii) restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or resale thereof. In the event that any of the Pledged Collateral is sold at private sale, Grantor agrees that if the Pledged Collateral is sold for a price which Secured Party in good faith believes to be reasonable, then (A) the sale shall be deemed to be commercially 103 11 reasonable in all respects, (B) Grantor shall not be entitled to a credit against the Obligations in an amount in excess of the purchase price, and (C) Secured Party shall not incur any liability or responsibility to Grantor in connection therewith, notwithstanding the possibility that a substantially higher price might have been realized at a public sale. Grantor recognizes that a ready market may not exist for Pledged Collateral which is not regularly traded on a recognized securities exchange, and that a sale by the Secured Party of any such Pledged Collateral for an amount substantially less than a pro rata share of the fair market value of the issuer's assets minus liabilities may be commercially reasonable in view of the difficulties that may be encountered in attempting to sell a large amount of Pledged Collateral or Pledged Collateral that is privately traded. 12.4 Title of Purchasers. Upon consummation of any sale of Pledged Collateral pursuant to this Section 12, Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold. Each such purchaser at any such sale shall hold the Pledged Collateral sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Pledged Collateral is made on credit or for future delivery, Secured Party shall not be required to apply any portion of the sale price to the Obligations until such amount actually is received by Secured Party, and any Pledged Collateral so sold may be retained by Secured Party until the sale price is paid in full by the purchaser or purchasers thereof. Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Pledged Collateral so sold, and, in case of any such failure, the Pledged Collateral may be sold again upon like notice. 12.5 Disposition of Proceeds of Sale. The net cash proceeds resulting from the collection, liquidation, sale or other disposition of the Pledged Collateral shall be applied, first, to the reasonable costs and expenses (including reasonable attorneys fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting and liquidating the Pledged Collateral, and the like; second, to the satisfaction of all Obligations, with application as to any particular Obligations to be in the order set forth in the Loan Agreement or other documents executed in connection therewith; and, third, to all other indebtedness secured hereby in such order and manner as Secured Party in its sole and absolute discretion may determine. 104 12 13. Covenant Not to Issue Uncertificated Securities. Grantor represents and warrants to Secured Party that all of the capital stock of the Pledged Companies is in certificated form (as contemplated by Division 8 of the California Commercial Code), and covenants to Secured Party that Grantor will use its best efforts to prevent the Pledged Companies from issuing any capital stock in uncertificated form or seeking to convert all or any part of its existing capital stock into uncertificated form (as contemplated by Division 8 of the California Commercial Code). 14. Covenant Not to Dilute Interests of Secured Party in Pledged Securities. Grantor represents, warrants and covenants to Secured Party that Grantor will not at any time vote to authorize the Pledged Companies to issue any additional capital stock, or any warrants, options or other rights to acquire any additional capital stock, if the effect thereof would be to dilute in any way the interests of Secured Party in any Pledged Securities or any corporation whose securities constitute Pledged Securities. 15. Attorneys Fees. Grantor agrees to pay to Secured Party all costs and expenses (including without limitation reasonable attorneys' fees and disbursements, including the allocated costs of in-house counsel) incurred by Secured Party in the enforcement of this Agreement with regard to the Collateral owned by it, whether or not an action is filed in connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All advances, charges, costs and expenses, including reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy conferred by this Agreement (including without limitation the right to perform any Obligation of Grantor under the loan documents), or in the enforcement thereof, shall be secured hereby and shall become a part of the Obligations and shall be paid to Secured Party by Grantor, immediately upon demand, together with interest thereon at the rate(s) provided for under the Loan Agreement. 16. Governing Law. This Agreement shall be governed and construed in accordance with the Laws of the State of California. 105 13 17. Successors and Assigns of Secured Party. This Agreement shall inure to the benefit of the successors and assigns of Secured Party. IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed as of the date first above written. "Grantor" ARLEN AUTOMOTIVE, INC., a Delaware corporation By: Allan J. Marrus --------------- Allan J. Marrus President By: /s/ Stephen B. Delman --------------------- Stephen B. Delman Assistant Secretary 106 EX-4.9.5 7 GUARANTY 1 EXHIBIT 4.9.5 107 2 GUARANTY This Guaranty ("Guaranty") is made as of August 10, 1995, by ARLEN HOLDINGS CORP., a Delaware corporation ("Guarantor") in favor of SUMITOMO BANK OF CALIFORNIA ("Bank"). Factual Background A. Guarantor is executing this Guaranty to induce Bank to make certain credit facilities (the "Loan") available to Arlen Automotive, Inc., Grant Products, Inc. and G.T. Styling, Inc. (collectively, "Borrowers"), in the principal amount of Eleven Million Five Hundred Fifty Thousand and No/100 Dollars ($11,550,000.00) (the "Loan Amount"). The loan is to be evidenced, in part, by a Commercial Loan Agreement (the "Loan Agreement") entered into as of even date herewith between Bank and Borrowers, and promissory notes (the "Notes") dated as of even date herewith made payable to Bank. B. This Guaranty is one of several "Loan Documents", as that term is defined in the Loan Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Loan Agreement. C. Guarantor is affiliated with, and is interested in the financial success of, each of Borrowers, and will realize direct and indirect benefit as a result of the Loan being made available to Borrowers. In order to induce the Bank to make the Loan available to Borrowers, Guarantor is willing to make this Guaranty in favor of Bank. GUARANTY 1. Guaranty of Loan. (a) Guarantor unconditionally guaranties to Bank the full payment of all of the obligations of Borrowers under the Loan Documents, including, without limitation, the payment of all indebtedness and accrued interest, and any and all charges, fees and expenses, under the Notes; the payment of all charges, fees and expenses for which Borrowers are obligated under the Loan Agreement; and any other fees, charges, sums, costs and expenses which may be owing at any time under any of the Loan Documents, as any or all of them may from time to time be modified, amended, extended or renewed (collectively, the "Loan Obligations"); and Guarantor unconditionally agrees to pay to Bank the full amount of the Loan Obligations. 108 3 (b) In addition to the foregoing, Guarantor hereby agrees to pay any and all costs and expenses (including, without limitation, reasonable attorneys' fees and costs, including allocated costs for services of Bank's in-house counsel) incurred by Bank in enforcing any rights or remedies under this Guaranty (including in the context of any Insolvency Proceedings (as that term is hereinafter defined)). From the time(s) incurred until paid in full to Bank, all such sums shall bear interest at the Default Rate, as defined in the Loan Agreement. (c) This is a guaranty of payment, not of collection. If Borrowers default in the payment when due of any of all or any part of the Loan Obligations, Guarantor shall in lawful money of the United States pay to Bank or its order, on demand, all sums due with respect to the Loan Obligations. If the amount outstanding under the Loan is determined by a court of competent jurisdiction, that determination shall be conclusive and binding on Guarantor, regardless of whether or not Guarantor was a party to the proceeding in which the determination was made. 2. Rights of Bank. Guarantor authorizes Bank to perform any or all of the following acts at any time in its sole discretion, all without notice to Guarantor and without affecting Guarantor's obligations under this Guaranty: (a) Bank may alter any terms of the Loan Documents, including renewing, compromising, extending or accelerating, or otherwise changing the time for payment of, or increasing or decreasing the rate of interest on, the Loan or any part of it. (b) Bank may take and hold security for the Loan or this Guaranty, accept additional or substituted security for either, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security. (c) Bank may direct the order and manner of any sale of all or any part of any security now or later to be held for the Loan or this Guaranty, and Bank may also bid at any such sale. (d) Bank may apply any payments or recoveries from Borrowers, Guarantor or any other source, and any proceeds of any security, to Borrowers' obligations under the Loan Documents in such manner, order and priority as Bank may elect, whether or not those obligations are guarantied by this Guaranty or secured at the time of the application. 109 4 (e) Bank may release any Borrower or Borrowers of their liability for the Loan, the Loan Obligations or any portion thereof. (f) Bank may substitute, add or release any one or more guarantors or endorsers. (g) In addition to the Loan, Bank may extend other credit to Borrowers, and may take and hold security for the credit so extended, all without affecting Guarantor's liability under this Guaranty. 3. Guaranty to be Absolute. Guarantor expressly agrees that until the Loan Obligations are paid and performed in full and each and every term, covenant and condition of this Guaranty is fully performed, Guarantor shall not be released by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify Guarantor's obligations under this Guaranty; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of Bank, or its failure to proceed promptly or otherwise as against Borrowers, Guarantor or any security; (c) Any action, omission or circumstance which might increase the likelihood that Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of Guarantor as against Borrower; (d) Any dealings occurring at any time between Borrowers and Bank, whether relating to the Loan or otherwise; or (e) Any action of Bank described in Section 2 above. Guarantor hereby acknowledges that absent this Section 3, Guarantor might have a defense to the enforcement of this Guaranty as a result of one or more of the foregoing acts, omissions, agreement, waivers or matters. Guarantor hereby expressly waives and surrenders any defense to any liability under this Guaranty based upon any of such acts, omissions, agreements, waivers or matters. It is the express intent of Guarantor that Guarantor's obligations under this Guaranty are and shall be absolute, unconditional and irrevocable. 110 5 4. Guarantor's Waivers. Guarantor waives: (a) All statutes of limitations as a defense to any action or proceeding brought against Guarantor by Bank, to the fullest extent permitted by law; (b) Any right it may have to require Bank to proceed against Borrowers, proceed against or exhaust any security held from Borrowers, or pursue any other remedy in Bank's power to pursue; (c) Any defense based on any claim that Guarantor's obligations exceed or are more burdensome than those of Borrowers; (d) Any defense based on: (i) any legal disability of Borrowers, (ii) any release, discharge, modification, impairment or limitation of the liability of Borrowers to Bank from any cause, whether consented to by Bank or arising by operation of law or from any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships ("Insolvency Proceeding") and (iii) any rejection or disaffirmance of the Loan, or any part of it, or any security held for it, in any such Insolvency Proceeding; (e) Any defense based on any action taken or omitted by Bank in any Insolvency Proceeding involving any Borrower, including any election to have Bank's claim allowed as being secured, partially secured or unsecured, any extension of credit by Bank to any Borrower in any Insolvency Proceeding, and the taking and holding by Bank of any security for any such extension of credit; (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind except for any demand or notice by Bank to Guarantor expressly provided for in Section 1; (g) Any defense based on or arising out of any defense that Borrowers may have to the payment or performance of the Loan Obligations or any part of it; and (h) Any defense based on or arising out of any action of Bank described in Sections 2 or 3 above. 111 6 5. Waivers of Subrogation and Other Rights and Defenses. (a) Upon a default by Borrowers, Bank in its sole discretion, without prior notice to or consent of Guarantor, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security it may hold for the Loan, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) compromise or adjust the Loan or any part of it or make any other accommodation with Borrowers or Guarantor, or (iv) exercise any other remedy against any Borrower or any security. No such action by Bank shall release or limit the liability of Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Borrowers for any sums paid to Bank, whether contractual or arising by operation of law or otherwise. Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by Bank or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Loan. (b) Regardless of whether Guarantor may have made any payments to Bank, Guarantor forever waives: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from Borrowers for any sums paid to Bank, whether contractual or arising by operation of law (including, United States Bankruptcy Code or any successor or similar statute) or otherwise, (ii) all rights to enforce any remedy that Bank may have against Borrowers, and (iii) all rights to participate in any security now or later to be held by Bank for the Loan. Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, and indemnification Guarantor may have against Borrowers or against any collateral or security, shall be junior and subordinate to any rights Bank may have against Borrowers, and to all right, title and interest Bank may have in any such collateral or security. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement or indemnification rights at any time when all Loan Obligations have not been paid in full, such amount shall be held in trust for Bank and shall forthwith be paid over to Bank to be credited and applied against the Loan Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. (c) Guarantor understands and acknowledges that if Bank forecloses judicially or nonjudicially against any real 112 7 property security for the Loan, that foreclosure could impair or destroy any ability that Guarantor may have to seek reimbursement, contribution or indemnification from Borrowers or others based on any right Guarantor may have of subrogation, reimbursement, contribution or indemnification for any amounts paid by Guarantor under this Guaranty. Guarantor further understands and acknowledges that in the absence of this Section 5, such potential impairment or destruction of Guarantor's rights, if any, may entitle Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, Guarantor freely, irrevocably and unconditionally: (i) waives and relinquishes that defense and agrees that Guarantor will be fully liable under this Guaranty even though Bank may foreclose judicially or nonjudicially against any real property security for the Loan; (ii) agrees that Guarantor will not assert that defense in any action or proceeding which Bank may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by Guarantor under this Guaranty include any right or defense that Guarantor may have or be entitled to assert based upon or arising out of any one or more of Sections 580a, 580b, 580d or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code (including, without limitation, any defense that any exercise by Bank of any right or remedy hereunder or under the Loan Documents violates, or would, in combination with the previous or subsequent exercise by Guarantor of any rights of subrogation, reimbursement, contribution, or indemnification against Borrowers or any other person, directly or indirectly result in, or be deemed to be, a violation of any of such statutory provisions); and (iv) acknowledges and agrees that Bank is relying on this waiver in making the Loan, and that this waiver is a material part of the consideration which Bank is receiving for making the Loan. (d) Guarantor waives the Guarantor's rights of subrogation and reimbursement and any other rights and defenses available to the Guarantor by reason of Sections 2787 to 2855, inclusive, of the Civil Code including, without limitation, (1) any defenses the Guarantor may have to the Guaranty obligation by reason of an election of remedies by Bank and (2) any rights or defenses the Guarantor may have by reason of protection afforded to the Borrowers with respect to the obligation so guaranteed pursuant to the antideficiency or other laws of California limiting or discharging the Borrowers' indebtedness, including, without limitation, Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure. (e) Guarantor waives all rights and defenses arising out of an election of remedies by Bank, even though that 113 8 election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the Borrowers by the operation of Section 580d of the Code of Civil Procedure of otherwise. (f) No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty. 6. Revival and Reinstatement. If Bank is required to pay, return or restore to any Borrower or any other person any amounts previously paid on any Loan Obligations because of any Insolvency Proceeding of any Borrower or any other reason, the obligations of Guarantor shall be reinstated and revived and the rights of Bank shall continue with regard to such amounts, all as though they had never been paid. 7. Information Regarding Borrowers. Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Borrowers, the present and former condition, uses and ownership of its properties, and such other matters as Guarantor deemed appropriate to assure itself of Borrowers' ability to discharge its obligations under the Loan Documents. Guarantor assumes full responsibility for that due diligence, as well as for keeping informed of all matters which may affect Borrowers' ability to pay and perform its obligations to Bank. Bank has no duty to disclose to Guarantor any information which Bank may have or receive about Borrowers' financial condition or business operations, or any other circumstances bearing on Borrowers' ability to perform. 8. Subordination. All rights of Guarantor to receive any payments by Borrowers (including withdrawal of capital invested or receipt of other distributions from any Borrower) shall at all times by subordinate as to lien and time of payment and in all other respects to the full and prior payment to Bank of the Loan Obligations; provided, however, so long as no Event of Default has occurred and is continuing under the Loan Agreement, Borrowers shall be permitted to make payments of interest, tax treaty payments and management fees as reflected in financial reports provided to Bank. Subject to the foregoing, Guarantor shall not be entitled to enforce or receive payment of any sums hereby subordinated until all Loan Obligations have been paid and performed in full and any such sums received in violation of this Guaranty shall be received by Guarantor in trust for Bank. 114 9 9. Guarantor's Representations and Warranties. Guarantor represents and warrants that: (a) All financial statements and other financial information furnished or to be furnished to Bank in all material respects do or will fairly represent the financial condition of Guarantor (including all contingent liabilities); (b) All financial statements were or will be prepared in accordance with generally accepted accounting principles, or such other accounting principles as may be acceptable to Bank at the time of their preparation, consistently applied; and (c) There has been no material adverse change in Guarantor's financial condition since the dates of the statements most recently furnished to Bank. 10. Events of Default. Bank may declare Guarantor to be in default under this Guaranty upon the occurrence of any of the following events. (a) Guarantor fails to perform any of its obligations under this Guaranty; or (b) Guarantor revokes this Guaranty or this Guaranty becomes ineffective for any reason; or (c) Any representation or warranty made or given by Guarantor to Bank proves to be false or misleading in any material respect; or (d) Guarantor becomes insolvent or the subject of any Insolvency Proceeding; or (e) Guarantor dies, dissolves or liquidates, or any of these events happens to Guarantor's chief executive, or Guarantor's president ceases for any reason to act in that capacity. 11. Waiver of Jury Trial. Guarantor acknowledges that jury trials often entail additional expenses and delays not occasioned by nonjury trials. Guarantor further agrees and stipulates that a fair trial may be had before a state or federal judge by means of a bench trial without a jury. In view of the foregoing, and as a specifically negotiated provision of this Guaranty, Guarantor hereby expressly waives any right to trial by jury of any claim, demand, action or cause of action (1) arising under this Guaranty or any other instrument, document or agreement executed or delivered in connection herewith, or (2) in any way connected with or related or incidental to the dealings of Borrowers, Bank and 115 10 Guarantor or any of them with respect to this Guaranty or any other instrument, document or agreement executed or delivered in connection herewith, or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether sounding in contract or tort or otherwise; and Guarantor hereby agrees and consents that any such claim, demand, action or cause of action shall be decided by court trial without a jury, and that Bank may file an original counterpart or a copy of this section with any court as written evidence of the consent of Guarantor to the waiver of their right to trial by jury. 12. Authorization; No Violation. Guarantor is authorized to execute, deliver and perform under this Guaranty, which is a valid and binding obligation of Guarantor. No provision or obligation of Guarantor contained in this Guaranty violates any applicable law, regulation or ordinance, or any order or ruling of any court or governmental agency. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement to which Guarantor is a party. No consent, approval or authorization of or notice to any person or entity is required in connection with Guarantor's execution of and obligations under this Guaranty. 13. Additional and Independent Obligations. Guarantor's obligations under this Guaranty are in addition to its obligations under any other existing or future guaranties, each of which shall remain in full force and effect until it is expressly modified or released in a writing signed by Bank. Guarantor's obligations under this Guaranty are independent of those of Borrowers on the Loan. Bank may bring a separate action against Guarantor without first proceeding against Borrowers, any other person or any security that Bank may hold, and without pursuing any other remedy. Bank's rights under this Guaranty shall not be exhausted by any action by Bank until all of the Loan Obligations have been paid and performed in full. 14. No Waiver; Consents; Cumulative Remedies. Each waiver by Bank must be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from Bank's delay in exercising or failure to exercise any right or remedy against Borrowers, Guarantor or any security. Consent by Bank to any act or omission by Borrowers or Guarantor shall not be construed as a consent to any other or subsequent act or omission, or as a waiver of the requirement for Bank's consent to be obtained in any future or other instance. All remedies of Bank against Borrowers and Guarantor are cumulative. 116 11 15. No Release. Guarantor shall not be released from its obligations under this Guaranty except by a writing signed by Bank. 16. Heirs, Successors and Assigns; Participations. The terms of this Guaranty shall bind and benefit the heirs, legal representatives, successors and assigns of Bank and Guarantor; provided, however, that Guarantor may not assign this Guaranty, or assign or delegate any of its rights or obligations under this Guaranty, without the prior written consent of Bank in each instance. Bank in its sole discretion may sell or assign participations or other interests in the Loan and this Guaranty, in whole or in part, all without notice to or the consent of Guarantor and without affecting Guarantor's obligations under this Guaranty. 17. Notices. All notices given under this Guaranty must be in writing and shall be effectively served upon delivery by facsimile or otherwise, or if mailed, upon the first to occur of receipt or the expiration of seventy-two hours after deposit in certified United States mail, postage prepaid, sent to the party at its address given at the end of this Guaranty. Those addresses may be changed by Bank or Guarantor by written notice to the other party. Service of any notice on any one Guarantor signing this Guaranty shall be effective service on Guarantor for all purposes. 18. Rules of Construction. When the context and construction so require, all words used in the singular shall be deemed to have been used in the plural and vice versa. No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Guaranty. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty. 19. Governing Law. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of California. 20. Costs and Expenses. Without limiting the generality of the obligation of Guarantor to pay the fees and expenses of Bank as provided in Section 1 hereof, if any lawsuit, reference or arbitration is commenced which arises out of, or which relates to this Guaranty, the Loan Documents or the Loan, the prevailing party shall be entitled to recover from each other party such sums as the court, referee or arbitrator may adjudge to be reasonable attorneys' fees (including allocated costs for services of in-house counsel) in the action or proceeding, in addition to costs and expenses otherwise allowed by law. 117 12 21. Consideration. Guarantor acknowledges that it expects to benefit from Bank's extension of the Loan to Borrowers because of its relationship to Borrowers, and that it is executing this Guaranty in consideration of that anticipated benefit. 22. Integration; Modifications. This Guaranty supersedes all oral negotiations and prior writings with respect to its subject matter, and is intended by Guarantor and Bank as the complete and final expression of the agreement with respect to the terms and conditions set forth in this Guaranty. This Guaranty may not be modified except in a writing signed by both Bank and Guarantor. 23. Miscellaneous. The liability of all persons who are in any manner obligated under this Guaranty shall be joint and several. The illegality or unenforceability of one or more provisions of this Guaranty shall not affect any other provision. Time is of the essence in the performance of this Guaranty by Guarantor. 24. Counsel. Guarantor acknowledges that Guarantor has had adequate opportunity to carefully read this Guaranty and to consult with an attorney of Guarantor's choice prior to signing it. IN WITNESS WHEREOF, the parties hereto have executed this Guaranty as of the date first above written. "Guarantor": Address Where Notices to Guarantor are to be Sent: ARLEN HOLDINGS CORP., Arlen Holdings Corp. a Delaware corporation 505 Eighth Avenue, Suite 300 New York, NY 10018 Attention: Mr. Allan J. Marrus By /s/ Allan J. Marrus ------------------- Allan J. Marrus President By /s/ Stephen B. Delman Address Where Notices to Bank --------------------- are to be Sent: Stephen B. Delman Assistant Secretary Sumitomo Bank of California 611 West Sixth Street Suite 3900 Los Angeles, California 90071 Attn: Matthew R. Van Steenhuyse 118 EX-10.11 8 CONSULTING AGREEMENT BETWEEN GRANT AND DAT 1 EXHIBIT 10.11 119 2 CONSULTING AGREEMENT CONSULTING AGREEMENT effective as of August 1, 1995 between GRANT PRODUCTS, INC., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING, LLC, a New York limited liability company ("CONSULTANT"). W I T N E S S E T H : WHEREAS, the efficient conduct of the Company's business operations and the enhancement of its growth potential require that it have available to it the services of a suitable chief operating officer and the support of an organization which can offer the Company, on a consulting basis, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, Tom A. Poteet has heretofore served the Company as its President and chief operating officer pursuant to an employment arrangement with the Company, but Mr. Poteet, who has never had an employment agreement with the Company, now desires to make his managerial services available to the Company only through Consultant, with whom he expects to enter into an employment agreement; and WHEREAS, Allan J. Marrus has previously provided the Company with certain of the aforementioned services pursuant to a consulting arrangement with the Company, but the Company and Mr. Marrus have mutually terminated such arrangement, recognizing that the Company's expanding business activities require the availability of a broader scope of services than those previously provided by Mr. Marrus alone; and WHEREAS, Consultant expects to be able to provide the Company not only with the 120 3 managerial services of Mr. Poteet and the expertise of Mr. Marrus, or of other suitable persons who will be able to provide similar services, but also, through Consultant's resources, with a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, in view of the foregoing, the Company desires to retain Consultant, and Consultant is willing to be retained by the Company, to provide the Company with the services described above, on a consulting basis, during the term of this Agreement, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth below and intending to be legally bound, the parties hereto agree as follows: 1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain the Consultant, and the Consultant hereby agrees to serve, as an independent management consultant to the Company, in accordance with the terms and provisions of this Agreement, during the Retention Period (as hereinafter defined). The "Retention Period" shall mean the five-year period beginning on the effective date of this Agreement and ending at the close of business on July 31, 2000, unless terminated sooner as hereinafter provided; provided, however, that, on each August 1 after the date hereof, the Retention Period shall be automatically extended for one (1) additional year unless, at least six (6) months prior to such August 1, either party hereto shall have notified the other party hereto that the Retention Period shall not be further extended. 2. CONSULTING SERVICES OF CONSULTANT. (a) The consulting services to be performed by Consultant as an independent management 121 4 consultant to the Company during the Retention Period shall relate to administration, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisitions and shall, in addition to providing the Company with the managerial services of a chief operating officer (who may be Tom A. Poteet or another suitable person), include, but not be limited to, the following: (i) monitoring of the Company's business operations and product lines and providing general advice regarding the administration of the Company and its business; (ii) analysis of the operations of the Company with a view to improving the efficiency of its operations and enhancing the reputation of the Company and its products; (iii) development of additional business relationships for the Company; (iv) assisting the Company in its labor relations with its employees (including the hiring of new management personnel) and in developing appropriate benefit programs for such employees; (v) analysis of the Company's plant and equipment requirements and, where necessary, the evaluation and negotiation of new lease transactions; (vi) review and evaluation of the Company's capital expenditure programs; (vii) assessing the Company's insurance needs and assisting the Company in negotiating favorable rates with insurance brokers and in placing such insurance; (viii) providing the Company with advice regarding its internal accounting and controls systems and procedures; (ix) assisting the Company in arranging the restructuring and/or refinancing of its existing credit facilities and in seeking other financing sources; (x) reviewing the Company's accounts receivable and making recommendations with respect to the extension of credit to customers; (xi) promoting the reputation of the Company in the investment community and evaluating opportunities for raising equity capital in the public or private 122 5 capital markets; (xii) assisting the Company in strategic business planning and in analysis of potential acquisition candidates for the Company; (xiii) assisting the Company in negotiating and consummating acquisition transactions which the Company decides to pursue; (xiv) evaluation of proposed purchasers for assets or operations of the Company which have been designated for disposition; and (xv) evaluation and negotiation of proposed licensing arrangements. (b) In performing its services hereunder, Consultant expects to be utilizing the services of qualified personnel, such as Tom A. Poteet, Allan J. Marrus and other members, managers, officers, employees, agents and representatives of Consultant, as well as other persons (which may include, directly or indirectly, other consultants and subconsultants) who may be retained by Consultant from time to time to perform such services. All members, managers, officers, employees, agents and representatives of Consultant, as well as any other persons (including direct or indirect consultants and subconsultants) who may be retained by Consultant from time to time in connection with Consultant's performance of its services to the Company hereunder, shall be compensated for their services directly by Consultant and not by the Company. All staffing decisions with respect to the services to be provided by Consultant hereunder shall be solely within the discretion of Consultant and, at any time and from time to time, Consultant may make any changes in such staffing which it considers necessary or appropriate. (c) Consultant and the Company acknowledge that the services to be performed by Consultant pursuant to this Agreement shall be performed by Consultant, including its members, managers, officers, employees, agents, representatives and other retained persons (including direct or indirect consultants and subconsultants) (all of which members, managers, officers, 123 6 employees, agents, representatives and other retained persons are hereinafter collectively referred to as "Consultant's Personnel"), as an independent contractor and that nothing herein contained shall be deemed to constitute an employer-employee relationship between the Company, on the one hand, and Consultant (and Consultant's Personnel), on the other hand. (d) Although it is not possible to estimate the amount of time that Consultant's Personnel will be devoting to the performance of Consultant's services under this Agreement, Consultant agrees that it will cause Consultant's Personnel (none of whom, with the exception of the person designated to serve as the chief operating officer of the Company, will be required or expected to be employed by Consultant on a full-time basis) to devote such time, during normal business hours, to the business and affairs of the Company as shall be reasonably necessary to enable Consultant to perform the services to be performed by Consultant hereunder. (e) The Company and Consultant acknowledge that the services to be performed by Consultant hereunder will generally not require that Consultant (or Consultant's Personnel), other than the person designated to serve as the chief operating officer of the Company, perform such services or otherwise be present at the Company's business premises in the State of California, though periodic visits to the Company's California location by one or more of Consultant's Personnel may be appropriate. Accordingly, it is contemplated that Consultant's services will generally be performed at such locations as shall be convenient for Consultant's Personnel and as Consultant from time to time shall, in its sole discretion consider appropriate, provided, however, that, when specifically requested by the Company, Consultant will make Consultant's Personnel available to meet with representatives of the Company at reasonable times upon reasonable notice. 124 7 (f) The Company and Consultant acknowledge that nothing contained in this Agreement shall prohibit Consultant or Consultant's Personnel from (i) being a consultant, director, officer, employee, investor, lender, shareholder, joint venturer, partner, manager or member in, or serving in any other capacity with, any other enterprise, association, corporation, joint venture, partnership or company (hereinafter collectively referred to as the "Other Business"), provided that the business of the Other Business does not directly compete with the business of the Company, or (ii) serving in any capacity or having any business relationship with, or being affiliated in any manner with, the Company or any of its affiliates. 3. CONSULTING FEES. During the Retention Period, as full compensation for the services to be rendered by Consultant pursuant to this Agreement, the Company agrees to pay to Consultant, and Consultant agrees to accept, consulting fees at an annual rate equal to the sum of (a) the total annual rate of payroll expense (including the cost to Consultant of employee benefit plans and programs and other employee perquisites) which the Company will incur with respect to Consultant's Personnel (who may include Tom A. Poteet) who shall be providing services to the Company on substantially a full-time basis and generally at the Company's business premises in the State of California, and (b) $530,000, which fees shall increase on each August 1 after the date hereof by 5% of the rate of the consulting fees payable immediately prior thereto. The consulting fees payable hereunder (the "Consulting Fees") shall be payable in equal monthly installments in advance on the 1st day of each month or, if such day is not a business day, on the immediately-preceding business day; at the request of Consultant, all payments of the Consulting Fees shall be made by wire transfer to such account or accounts as shall be designated from time to time by Consultant. 125 8 4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees payable to Consultant as provided above in paragraph 3, Consultant shall be reimbursed, upon submission to the Company of appropriate vouchers and receipts, for out-of-pocket expenses (including, without limitation, travel expenses) reasonably incurred by Consultant in furtherance of the Company's business. Such reimbursement shall take place promptly after the required submissions, and in no event less frequently than bi-weekly. 5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of any other amounts payable to Consultant under this Agreement which are not paid when due shall bear interest at the rate which is 2% above the "prime" rate in effect from time to time. 6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its retention of Consultant under this Agreement at any time during the Retention Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated breaches by Consultant of Consultant's obligations under this Agreement, which breaches (a) were demonstrably willful and deliberate on Consultant's part, (b) were committed in bad faith or without the reasonable belief that such breaches were in the best interests of the Company and (c) have not been remedied in a reasonable period of time after receipt of written notice from the Company specifying such breaches and demanding that they be remedied within a reasonable period of time. 7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate its retention by the Company under this Agreement for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to Consultant of any duties or responsibilities inconsistent in any respect with the terms of Consultant's retention hereunder or any other action by the Company which results in a diminution of Consultant's involvement with the business of the Company or its authorities, powers, 126 9 functions or duties under this Agreement or imposes upon Consultant any requirement for the performance of its services hereunder which did not exist as of the date hereof, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given to the Company by Consultant; (b) any failure by the Company to pay when due any payment of the Consulting Fees or other amounts payable to Consultant hereunder, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Consultant; (c) any purported termination by the Company of Consultant's retention other than as expressly permitted by this Agreement; (d) any failure by the Company to comply with and satisfy subparagraph (c) of paragraph 15 below, provided that the successor to which such paragraph applies has received at least ten (10) days' prior written notice from the Company or the Consultant of the requirements of such paragraph; (e) the occurrence of a "Change in Control of the Company" (as hereinafter defined); or (f) (i) the filing by the Company of a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law, (ii) the making by the Company of a general assignment for the benefit of its creditors or of any other composition or reorganization agreement with its creditors, (iii) the appointment of a trustee or receiver of the Company or of the whole or any substantial part of its property or (iv) on a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law filed against the Company, the adjudication of the Company as a bankrupt, the failure of the Company to contest such filing, the admission by the Company of the material allegations of such petition or the failure of the Company to have such petition vacated, set aside or stayed within sixty (60) days from the date of the filing thereof. Consultant may terminate its retention by the Company under this Agreement for "Good Reason" at any time during the Retention Period, except that any such termination pursuant to subparagraph (e) above of this paragraph 7 must take place within twelve (12) months after the occurrence of the "Change in Control of the Company". 127 10 For purposes of this Agreement, any good faith determination of "Good Reason" made by Consultant shall be conclusive and binding on the Company, absent manifest error. For purposes of this Agreement, a "Change in Control of the Company" shall have occurred (i) if there has occurred a change in control of the Company as the term "control" is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons who are the current members of the Company's Board of Directors cease to constitute at least a majority of such Board of Directors and their replacements were not persons elected or appointed with the favorable vote or consent of Consultant; (iii) if the shareholder(s) of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iv) if the shareholder(s) of the Company approve a plan of complete liquidation of the Company; (v) if the shareholder(s) of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (vi) if the Company shall cease to be a member of the affiliated group (within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York corporation, is the parent corporation. 8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or by Consultant for Good Reason, shall be communicated by a Notice of Termination to the other party hereto 128 11 in accordance with paragraph 16 below. For purposes of this Agreement, a "Notice of Termination" means a written notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Consultant's retention under the provision so indicated and (c) if the Termination Date (as hereinafter defined) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by Consultant or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not constitute a waiver of any right of Consultant or the Company hereunder or preclude Consultant or the Company from asserting such fact or circumstance in enforcing Consultant's or the Company's rights hereunder. 9. TERMINATION DATE. For purposes of this Agreement, the Termination Date means, whether Consultant's retention is terminated by the Company for Cause, by Consultant for Good Reason or otherwise by Consultant or the Company, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be. 10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT. (a) Prior to a Change in Control of the Company, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) all Consulting Fees which would be payable to Consultant through the end of the Retention Period 129 12 if Consultant were to continue to perform its services hereunder through the end of the Retention Period (provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date). (b) After a Change in Control of the Company has occurred, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) as Consultant, in its sole discretion may elect, either (A) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date) or (B) as liquidated damages (which the parties hereto acknowledge to be fair and reasonable in view of the impossibility of determining the actual damages which Consultant may suffer as a result of such termination), the sum of $1,500,000. (c) At any time during the Retention Period, if Consultant's retention is terminated by the Company for Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date and (ii) all 130 13 unreimbursed expenses payable to Consultant pursuant to paragraph 4 above. (d) In the event that, in the case of a termination by the Company of Consultant's retention for Cause, Consultant shall have notified the Company (the "Notice of Dispute"), within ten (10) business days after having received the Notice of Termination, that Consultant disputes whether the Company had "Cause" for such termination, then, notwithstanding and in addition to the payment required above by subparagraph (b) of this paragraph 10, the Company shall continue without interruption the payment of the Consulting Fees payable pursuant to paragraph 3 above, provided, however, that all such payments of the Consulting Fees shall be made to an attorney designated by Consultant for such purpose in the Notice of Dispute, with the aggregate amount of all such payments (and all interest earned thereon) being held in escrow by such attorney, pending (i) agreement by Consultant and the Company as to the issue of "Cause" and the disposition of the escrowed funds or (ii) a final, non-appealable order of a court of competent jurisdiction determining these matters (with the prevailing party with respect to such order be entitled to recover its attorneys' fees and disbursements, court costs and other costs and expenses relating to this dispute from the other party). (e) Upon payment in full of the applicable payments required above by subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to subparagraph (d) of this paragraph 10), this Agreement shall terminate and be of no further force or effect, except that the provisions of paragraph 14 below shall survive such termination. (f) Consultant shall not be required to mitigate the payment of any payments received pursuant to subparagraphs (a), (b), (c) or (d) of this paragraph 10 by seeking other consulting engagements and, to the extent that Consultant shall, after the Termination Date, receive 131 14 compensation from any other consulting engagements, the payments received hereunder shall not be adjusted. 11. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Consultant, any of Consultant's Personnel or others. 12. INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel by reason of the business and operations of the Company or Consultant's duties hereunder, excluding only such of the foregoing as are determined by a court of competent jurisdiction (without any further right of appeal) to have resulted from the willful and wanton misconduct or fraud of Consultant or Consultant's Personnel. (b) Upon Consultant's discovery of any claim by a third party which, if sustained, would be subject to indemnification pursuant to subparagraph (a) of this paragraph 12, Consultant shall give prompt notice to the Company of such claim, provided, however, that the failure of Consultant to so promptly notify the Company of such claim shall not relieve the Company of any indemnification obligation under this Agreement unless the Company shall have been substantially prejudiced thereby. Unless Consultant shall, in its sole discretion, agree in writing 132 15 to assume and control the defense of any action for which indemnification may be sought, the Company shall assume and control such defense, in which event Consultant shall have the right to employ counsel at Consultant's expense to represent it in addition to counsel employed by the Company. If the Company shall fail or refuse to undertake the defense within fifteen (15) days after receiving notice that a claim has been made, Consultant shall have the right (but not the obligation) to assume the defense of such claim in such manner as it deems appropriate until the Company shall, with the consent of Consultant, assume control of such defense, and the Company shall indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and against the costs and expenses of such defense. The party hereto handling the defense of an action shall keep the other party hereto fully informed at all times of the status of the claim. Neither the Company nor the Consultant, when handling the defense of a claim for which indemnification may be sought by Consultant, shall settle such claim without the consent of the other party hereto (which consent shall not be unreasonably withheld or delayed) unless such settlement shall (i) impose no additional liability or obligation upon the party hereto (or its shareholders, directors and officers and, in the case of Consultant, Consultant's Personnel) whose consent would otherwise be required and (ii) where the Company is handling the defense and settlement of the claim, provide Consultant and Consultant's Personnel with a general release with respect to the subject claim. (c) In any matter with respect to which Consultant may be entitled to indemnification from the Company pursuant to subparagraph (a) of this paragraph 12, the Company shall, to the extent not prohibited by applicable law, advance to Consultant and Consultant's Personnel, pending the final disposition of such matter, all costs and expenses which Consultant and/or 133 16 Consultant's Personnel may incur in such matter, including, without limitation, all attorneys' fees and disbursements, court costs and the fees and disbursements of accountants, other experts and consultants. (d) The rights of indemnification provided by this paragraph 12 shall be in addition to, and not be deemed exclusive of, any other rights and remedies apart from this Agreement which may be available to Consultant and Consultant's Personnel, whether by contract, at law, in equity or otherwise. 13. NO JOINT VENTURE, ETC. (a) Nothing in this Agreement shall be construed as (i) creating a partnership, joint venture or agency relationship between the Company and Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or otherwise be liable for any portion of any losses directly or indirectly incurred by the Company and arising out of or otherwise connected with the services performed or to be performed by Consultant pursuant to this Agreement. (b) Neither Consultant nor Consultant's Personnel shall be liable, responsible or in any way accountable in damages or otherwise to the Company or any other entity or person for any loss or damage incurred by the Company by reason of any act or omission to act by Consultant or Consultant's Personnel, except the willful and wanton misconduct or fraud of Consultant or or Consultant's Personnel in connection with the performance of Consultant's services hereunder. (c) Consultant does not represent, warrant, guarantee or ensure any particular business results from the services which may be performed for, or the projections, plans, reports or studies which may be prepared for, the Company pursuant to this Agreement. 134 17 (d) In the event that Consultant refers or introduces to the Company, or arranges for the Company to utilize the services of, third parties such as attorneys, accountants, investment bankers, brokers, finders, sales or marketing representatives, contractors or other consultants (who will not be retained without the consent of the Company, which will not be unreasonably withheld or delayed), such third parties will be direct contractors for the Company and not Consultant and their fees, commissions, disbursements and other charges will be the sole responsibility of the Company. 14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION. (a) Consultant shall hold, and shall use its best efforts to cause Consultant's Personnel to hold, in strict confidence for the benefit of the Company, all secret or confidential information, knowledge or data relating to the Company and its business, which shall have been obtained by Consultant or Consultant's Personnel during Consultant's retention by the Company and which shall not be or have become (i) generally available to the public other than as a result of a disclosure by Consultant, (ii) already known by Consultant on a non-confidential basis prior to having been furnished by the Company to Consultant or (iii) available to Consultant on a non-confidential basis from a source other than the Company if such source was not known to be subject to any prohibition against the transmittal of such information. Consultant will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such confidential information, knowledge or data to anyone other than the Company and those designated by it. In the event of a breach or threatened breach by Consultant of the immediately-preceding paragraph of this subparagraph (a) of this paragraph 14, the Company shall be entitled, upon 135 18 establishing the existence of such breach or threatened breach, to an injunction to be issued by any tribunal of competent jurisdiction to restrain Consultant from committing or continuing any such violation. In any proceeding for a temporary or permanent injunction, Consultant agrees that its ability to answer in damages shall not be a bar or be interposed as a defense to the granting of such a temporary or permanent injunction against it. Consultant acknowledges that the Company will not have an adequate remedy at law in the event of any breach by Consultant as aforesaid and that the Company may suffer irreparable damage and injury in the event of such a breach by Consultant. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedy or remedies available to the Company, including, without limitation, the recovery of damages from Consultant for any such breach. (b) The Company acknowledges that, in connection with Consultant's performance of its services hereunder, Consultant and Consultant's Personnel must at all times rely, as to accuracy and completeness, upon information furnished to them by the Company's officers, employees and agents. Accordingly, Consultant and Consultant's Personnel shall have no liability for any acts or omissions taken, or reports and documentation produced, in reliance upon information furnished to them by the Company's officers, employees and agents, and the Company shall, as provided above in paragraph 12, indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel, which are attributable to such reliance by Consultant and Consultant's Personnel upon information furnished by the 136 19 Company's officers, employees and agents. 15. SUCCESSORS. (a) This Agreement is personal to Consultant and, without the prior written consent of the Company, this Agreement shall not be assignable by Consultant. This Agreement shall inure to the benefit of, be binding upon and be enforceable by Consultant. (b) This Agreement shall not be assignable by the Company except to a successor of the Company which has complied with the requirements below of subparagraph (c) of this paragraph 15. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Company and its successors and assigns who have complied with the requirements below of subparagraph (c) of this paragraph 15. (c) The Company will require any successor (whether direct or indirect, by purchase of assets or capital stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinabove defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 16. GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. (b) Each party hereto, for itself and its successors and assigns, hereby consents to personal jurisdiction over it in the courts of the State of New York, in and for New York 137 20 County, and in any federal court located in the State of New York, in and for the Southern District of New York, in connection with any action, suit or proceeding arising out of or relating in any way to this Agreement. Each party hereto, for itself and its successors and assigns, agrees that personal service of process upon it may be made in any manner permitted by the laws of the State of New York and hereby agrees that service will be deemed sufficient over it if service is made by registered or certified mail to the addresses specified below in subparagraph (b) of paragraph 17. The Company, for itself and its successors and assigns, agrees that no action, suit or proceeding of any kind may be brought, and no claim may be asserted (whether by counterclaim, cross-claim or otherwise) by it or them against Consultant or Consultant's Personnel with respect to any matter arising from, relating to or in connection with this Agreement except in the courts of the State of New York, in and for New York County, and the federal courts located in the State of New York, in and for the Southern District of New York. 17. MISCELLANEOUS. (a) The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board of Directors or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed received (i) 138 21 on the date delivered if personally delivered or sent by telecopier (with receipt confirmed), (ii) on the first business day after sent by an overnight air express delivery service guaranteeing next-day delivery or (iii) on the third business day after being deposited in the United States mail, if mailed by certified or registered mail, return receipt requested, with first class postage affixed thereon, and properly addressed as follows: (a) if to Consultant, to: DAT Consulting, LLC 85 West Hawthorne Avenue Valley Stream, NY 11580 FAX: 516/825-0063) with a copy to: Herrick, Feinstein LLP 2 Park Avenue New York, NY 10016 Attention: Leonard Grunstein, Esq. (FAX: 212/889-7577) (b) if to the Company, to: Grant Products, Inc. 700 Allen Avenue Glendale, CA 91201 Attention: President (FAX: 818/241-4683) with a copy to: Stephen B. Delman, Esq. 10 River Road New York, NY 10044 (FAX: 212/279-9595) or to such other person or address as any party hereto shall have specified by notice in writing to the other party hereto. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect 139 22 the validity or enforceability of any other provision of this Agreement. (d) Consultant's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right which Consultant or the Ccmpany may have hereunder, including, without limitation, the right of Consultant to terminate employment for Good Reason pursuant to paragraph 7 above, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (e) This instrument contains the entire agreement of the parties hereto with respect to the subject matter hereof, and all promises, representations, understandings, arrangements and prior agreements are merged herein and superseded hereby. (f) This Agreement is for the sole benefit of the Company and Consultant (and, in connection with the indemnification provisions of paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein, express or implied, is intended to, or shall, confer on any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (g) Each of the parties hereto represents and warrants to the other party hereto that this Agreement has been duly authorized by all necessary corporate or company action, has been duly executed and delivered and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms. IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement 140 23 to be executed as of the day and year first above written. GRANT PRODUCTS, INC. BY: /s/ TOM A. POTEET ----------------------------------- TOM A. POTEET, PRESIDENT DAT CONSULTING, LLC BY: WAVEROCK CONSULTING, INC. BY: /s/ ALLAN J. MARRUS ----------------------------------- ALLAN J. MARRUS, PRESIDENT BY: ROSEMARK, INC. BY: /s/ MARK ROSENBERG ----------------------------------- MARK ROSENBERG, PRESIDENT 141 EX-10.12 9 CONSULTING AGREEMENT BETWEEN GTS AND DAT 1 EXHIBIT 10.12 142 2 CONSULTING AGREEMENT CONSULTING AGREEMENT effective as of August 1, 1995 between G.T. STYLING, INC., a California corporation (THE "COMPANY"), and DAT CONSULTING, LLC, a New York limited liability company ("CONSULTANT"). W I T N E S S E T H : WHEREAS, the efficient conduct of the Company's business operations and the enhancement of its growth potential require that it have available to it the services of a suitable chief operating officer and the support of an organization which can offer the Company, on a consulting basis, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, Jeffery J. Gati has heretofore served the Company as its President and chief operating officer pursuant to an employment arrangement with the Company, but Mr. Gati, who does not have an employment agreement with the Company, now desires to make his managerial services available to the Company only through Consultant, with whom he expects to enter into an employment agreement; and WHEREAS, Allan J. Marrus and Douglas A. Turner have previously provided the Company with certain of the aforementioned services pursuant to their respective consulting arrangements with the Company, but the Company and Mr. Marrus have mutually terminated their arrangement and the Company's consulting arrangement with Mr. Turner will soon terminate by its terms; and WHEREAS, Consultant expects to be able to provide the Company not only with the managerial services of Mr. Gati and the expertise of Mr. Marrus and Mr. Turner, or of other 143 3 suitable persons who will be able to provide similar services, but also, through Consultant's resources, with a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, in view of the foregoing, the Company desires to retain Consultant, and Consultant is willing to be retained by the Company, to provide the Company with the services described above, on a consulting basis, during the term of this Agreement, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth below and intending to be legally bound, the parties hereto agree as follows: 1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain the Consultant, and the Consultant hereby agrees to serve, as an independent management consultant to the Company, in accordance with the terms and provisions of this Agreement, during the Retention Period (as hereinafter defined). The "Retention Period" shall mean the five-year period beginning on the effective date of this Agreement and ending at the close of business on July 31, 2000, unless terminated sooner as hereinafter provided; provided, however, that, on each August 1 after the date hereof, the Retention Period shall be automatically extended for one (1) additional year unless, at least six (6) months prior to such August 1, either party hereto shall have notified the other party hereto that the Retention Period shall not be further extended. 2. CONSULTING SERVICES OF CONSULTANT. (a) The consulting services to be performed by Consultant as an independent management 144 4 consultant to the Company during the Retention Period shall relate to administration, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisitions and shall, in addition to providing the Company with the managerial services of a chief operating officer (who may be Jeffery J. Gati or another suitable person), include, but not be limited to, the following: (i) monitoring of the Company's business operations and product lines and providing general advice regarding the administration of the Company and its business; (ii) analysis of the operations of the Company with a view to improving the efficiency of its operations and enhancing the reputation of the Company and its products; (iii) development of additional business relationships for the Company; (iv) assisting the Company in its labor relations with its employees (including the hiring of new management personnel) and in developing appropriate benefit programs for such employees; (v) analysis of the Company's plant and equipment requirements and, where necessary, the evaluation and negotiation of new lease transactions; (vi) review and evaluation of the Company's capital expenditure programs; (vii) assessing the Company's insurance needs and assisting the Company in negotiating favorable rates with insurance brokers and in placing such insurance; (viii) providing the Company with advice regarding its internal accounting and controls systems and procedures; (ix) assisting the Company in arranging the restructuring and/or refinancing of its existing credit facilities and in seeking other financing sources; (x) reviewing the Company's accounts receivable and making recommendations with respect to the extension of credit to customers; (xi) promoting the reputation of the Company in the investment community and evaluating opportunities for raising equity capital in the public or private 145 5 capital markets; (xii) assisting the Company in strategic business planning and in analysis of potential acquisition candidates for the Company; (xiii) assisting the Company in negotiating and consummating acquisition transactions which the Company decides to pursue; (xiv) evaluation of proposed purchasers for assets or operations of the Company which have been designated for disposition; and (xv) evaluation and negotiation of proposed licensing arrangements. (b) In performing its services hereunder, Consultant expects to be utilizing the services of qualified personnel, such as Jeffery J. Gati, Allan J. Marrus and Douglas A. Turner and other members, managers, officers, employees, agents and representatives of Consultant, as well as other persons (which may include, directly or indirectly, other consultants and subconsultants) who may be retained by Consultant from time to time to perform such services. All members, managers, officers, employees, agents and representatives of Consultant, as well as any other persons (including direct or indirect consultants and subconsultants) who may be retained by Consultant from time to time in connection with Consultant's performance of its services to the Company hereunder, shall be compensated for their services directly by Consultant and not by the Company. All staffing decisions with respect to the services to be provided by Consultant hereunder shall be solely within the discretion of Consultant and, at any time and from time to time, Consultant may make any changes in such staffing which it considers necessary or appropriate. (c) Consultant and the Company acknowledge that the services to be performed by Consultant pursuant to this Agreement shall be performed by Consultant, including its members, managers, officers, employees, agents, representatives and other retained persons (including 146 6 direct or indirect consultants and subconsultants) (all of which members, managers, officers, employees, agents, representatives and other retained persons are hereinafter collectively referred to as "Consultant's Personnel"), as an independent contractor and that nothing herein contained shall be deemed to constitute an employer-employee relationship between the Company, on the one hand, and Consultant (and Consultant's Personnel), on the other hand. (d) Although it is not possible to estimate the amount of time that Consultant's Personnel will be devoting to the performance of Consultant's services under this Agreement, Consultant agrees that it will cause Consultant's Personnel (none of whom, with the exception of the person designated to serve as the chief operating officer of the Company, will be required or expected to be employed by Consultant on a full-time basis) to devote such time, during normal business hours, to the business and affairs of the Company as shall be reasonably necessary to enable Consultant to perform the services to be performed by Consultant hereunder. (e) The Company and Consultant acknowledge that the services to be performed by Consultant hereunder will generally not require that Consultant (or Consultant's Personnel), other than the person designated to serve as the chief operating officer of the Company, perform such services or otherwise be present at the Company's business premises in the State of California, though periodic visits to the Company's California location by one or more of Consultant's Personnel may be appropriate. Accordingly, it is contemplated that Consultant's services will generally be performed at such locations as shall be convenient for Consultant's Personnel and as Consultant from time to time shall, in its sole discretion consider appropriate, provided, however, that, when specifically requested by the Company, Consultant will make Consultant's Personnel available to meet with representatives of the Company at reasonable times 147 7 upon reasonable notice. (f) The Company and Consultant acknowledge that nothing contained in this Agreement shall prohibit Consultant or Consultant's Personnel from (i) being a consultant, director, officer, employee, investor, lender, shareholder, joint venturer, partner, manager or member in, or serving in any other capacity with, any other enterprise, association, corporation, joint venture, partnership or company (hereinafter collectively referred to as the "Other Business"), provided that the business of the Other Business does not directly compete with the business of the Company, or (ii) serving in any capacity or having any business relationship with, or being affiliated in any manner with, the Company or any of its affiliates. 3. CONSULTING FEES. During the Retention Period, as full compensation for the services to be rendered by Consultant pursuant to this Agreement, the Company agrees to pay to Consultant, and Consultant agrees to accept, consulting fees at an annual rate equal to the sum of (a) the total annual rate of payroll expense (including the cost to Consultant of employee benefit plans and programs and other employee perquisites) which the Company will incur with respect to Consultant's Personnel (who may include Jeffery J. Gati) who shall be providing services to the Company on substantially a full-time basis and generally at the Company's business premises in the State of California, and (b) $1,000,000, which fees shall increase on each August 1 after the date hereof by 5% of the rate of the consulting fees payable immediately prior thereto. The consulting fees payable hereunder (the "Consulting Fees") shall be payable in equal monthly installments in advance on the 1st day of each month or, if such day is not a business day, on the immediately-preceding business day; at the request of Consultant, all payments of the Consulting Fees shall be made by wire transfer to such account or accounts as 148 8 shall be designated from time to time by Consultant. 4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees payable to Consultant as provided above in paragraph 3, Consultant shall be reimbursed, upon submission to the Company of appropriate vouchers and receipts, for out-of-pocket expenses (including, without limitation, travel expenses) reasonably incurred by Consultant in furtherance of the Company's business. Such reimbursement shall take place promptly after the required submissions, and in no event less frequently than bi-weekly. 5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of any other amounts payable to Consultant under this Agreement which are not paid when due shall bear interest at the rate which is 2% above the "prime" rate in effect from time to time. 6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its retention of Consultant under this Agreement at any time during the Retention Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated breaches by Consultant of Consultant's obligations under this Agreement, which breaches (a) were demonstrably willful and deliberate on Consultant's part, (b) were committed in bad faith or without the reasonable belief that such breaches were in the best interests of the Company and (c) have not been remedied in a reasonable period of time after receipt of written notice from the Company specifying such breaches and demanding that they be remedied within a reasonable period of time. 7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate its retention by the Company under this Agreement for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to Consultant of any duties or responsibilities inconsistent in any respect with the terms of Consultant's retention hereunder or 149 9 any other action by the Company which results in a diminution of Consultant's involvement with the business of the Company or its authorities, powers, functions or duties under this Agreement or imposes upon Consultant any requirement for the performance of its services hereunder which did not exist as of the date hereof, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given to the Company by Consultant; (b) any failure by the Company to pay when due any payment of the Consulting Fees or other amounts payable to Consultant hereunder, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Consultant; (c) any purported termination by the Company of Consultant's retention other than as expressly permitted by this Agreement; (d) any failure by the Company to comply with and satisfy subparagraph (c) of paragraph 15 below, provided that the successor to which such paragraph applies has received at least ten (10) days' prior written notice from the Company or the Consultant of the requirements of such paragraph; (e) the occurrence of a "Change in Control of the Company" (as hereinafter defined); or (f) (i) the filing by the Company of a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law, (ii) the making by the Company of a general assignment for the benefit of its creditors or of any other composition or reorganization agreement with its creditors, (iii) the appointment of a trustee or receiver of the Company or of the whole or any substantial part of its property or (iv) on a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law filed against the Company, the adjudication of the Company as a bankrupt, the failure of the Company to contest such filing, the admission by the Company of the material allegations of such petition or the failure of the Company to have such petition vacated, set aside or stayed within sixty (60) days from the date of the filing thereof. Consultant may terminate its retention by the Company under this Agreement for "Good Reason" at any time during the Retention Period, except that any such termination pursuant to subparagraph (e) above of this paragraph 7 must take place within twelve (12) months after the 150 10 occurrence of the "Change in Control of the Company". For purposes of this Agreement, any good faith determination of "Good Reason" made by Consultant shall be conclusive and binding on the Company, absent manifest error. For purposes of this Agreement, a "Change in Control of the Company" shall have occurred (i) if there has occurred a change in control of the Company as the term "control" is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons who are the current members of the Company's Board of Directors cease to constitute at least a majority of such Board of Directors and their replacements were not persons elected or appointed with the favorable vote or consent of Consultant; (iii) if the shareholder(s) of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iv) if the shareholder(s) of the Company approve a plan of complete liquidation of the Company; (v) if the shareholder(s) of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (vi) if the Company shall cease to be a member of the affiliated group (within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York corporation, is the parent corporation. 8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or by Consultant 151 11 for Good Reason, shall be communicated by a Notice of Termination to the other party hereto in accordance with paragraph 16 below. For purposes of this Agreement, a "Notice of Termination" means a written notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Consultant's retention under the provision so indicated and (c) if the Termination Date (as hereinafter defined) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by Consultant or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not constitute a waiver of any right of Consultant or the Company hereunder or preclude Consultant or the Company from asserting such fact or circumstance in enforcing Consultant's or the Company's rights hereunder. 9. TERMINATION DATE. For purposes of this Agreement, the Termination Date means, whether Consultant's retention is terminated by the Company for Cause, by Consultant for Good Reason or otherwise by Consultant or the Company, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be. 10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT. (a) Prior to a Change in Control of the Company, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) all 152 12 Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date). (b) After a Change in Control of the Company has occurred, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) as Consultant, in its sole discretion may elect, either (A) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date) or (B) as liquidated damages (which the parties hereto acknowledge to be fair and reasonable in view of the impossibility of determining the actual damages which Consultant may suffer as a result of such termination), the sum of $2,900,000. (c) At any time during the Retention Period, if Consultant's retention is terminated by the Company for Cause, the Company shall pay to Consultant, in cash in a lump sum on the 153 13 Termination Date, (i) all unpaid Consulting Fees through the Termination Date and (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above. (d) In the event that, in the case of a termination by the Company of Consultant's retention for Cause, Consultant shall have notified the Company (the "Notice of Dispute"), within ten (10) business days after having received the Notice of Termination, that Consultant disputes whether the Company had "Cause" for such termination, then, notwithstanding and in addition to the payment required above by subparagraph (b) of this paragraph 10, the Company shall continue without interruption the payment of the Consulting Fees payable pursuant to paragraph 3 above, provided, however, that all such payments of the Consulting Fees shall be made to an attorney designated by Consultant for such purpose in the Notice of Dispute, with the aggregate amount of all such payments (and all interest earned thereon) being held in escrow by such attorney, pending (i) agreement by Consultant and the Company as to the issue of "Cause" and the disposition of the escrowed funds or (ii) a final, non-appealable order of a court of competent jurisdiction determining these matters (with the prevailing party with respect to such order be entitled to recover its attorneys' fees and disbursements, court costs and other costs and expenses relating to this dispute from the other party). (e) Upon payment in full of the applicable payments required above by subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to subparagraph (d) of this paragraph 10), this Agreement shall terminate and be of no further force or effect, except that the provisions of paragraph 14 below shall survive such termination. (f) Consultant shall not be required to mitigate the payment of any payments received pursuant to subparagraphs (a), (b), (c) or (d) of this paragraph 10 by seeking other consulting 154 14 engagements and, to the extent that Consultant shall, after the Termination Date, receive compensation from any other consulting engagements, the payments received hereunder shall not be adjusted. 11. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Consultant, any of Consultant's Personnel or others. 12. INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel by reason of the business and operations of the Company or Consultant's duties hereunder, excluding only such of the foregoing as are determined by a court of competent jurisdiction (without any further right of appeal) to have resulted from the willful and wanton misconduct or fraud of Consultant or Consultant's Personnel. (b) Upon Consultant's discovery of any claim by a third party which, if sustained, would be subject to indemnification pursuant to subparagraph (a) of this paragraph 12, Consultant shall give prompt notice to the Company of such claim, provided, however, that the failure of Consultant to so promptly notify the Company of such claim shall not relieve the Company of any indemnification obligation under this Agreement unless the Company shall have been 155 15 substantially prejudiced thereby. Unless Consultant shall, in its sole discretion, agree in writing to assume and control the defense of any action for which indemnification may be sought, the Company shall assume and control such defense, in which event Consultant shall have the right to employ counsel at Consultant's expense to represent it in addition to counsel employed by the Company. If the Company shall fail or refuse to undertake the defense within fifteen (15) days after receiving notice that a claim has been made, Consultant shall have the right (but not the obligation) to assume the defense of such claim in such manner as it deems appropriate until the Company shall, with the consent of Consultant, assume control of such defense, and the Company shall indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and against the costs and expenses of such defense. The party hereto handling the defense of an action shall keep the other party hereto fully informed at all times of the status of the claim. Neither the Company nor the Consultant, when handling the defense of a claim for which indemnification may be sought by Consultant, shall settle such claim without the consent of the other party hereto (which consent shall not be unreasonably withheld or delayed) unless such settlement shall (i) impose no additional liability or obligation upon the party hereto (or its shareholders, directors and officers and, in the case of Consultant, Consultant's Personnel) whose consent would otherwise be required and (ii) where the Company is handling the defense and settlement of the claim, provide Consultant and Consultant's Personnel with a general release with respect to the subject claim. (c) In any matter with respect to which Consultant may be entitled to indemnification from the Company pursuant to subparagraph (a) of this paragraph 12, the Company shall, to the extent not prohibited by applicable law, advance to Consultant and Consultant's Personnel, 156 16 pending the final disposition of such matter, all costs and expenses which Consultant and/or Consultant's Personnel may incur in such matter, including, without limitation, all attorneys' fees and disbursements, court costs and the fees and disbursements of accountants, other experts and consultants. (d) The rights of indemnification provided by this paragraph 12 shall be in addition to, and not be deemed exclusive of, any other rights and remedies apart from this Agreement which may be available to Consultant and Consultant's Personnel, whether by contract, at law, in equity or otherwise. 13. NO JOINT VENTURE, ETC. (a) Nothing in this Agreement shall be construed as (i) creating a partnership, joint venture or agency relationship between the Company and Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or otherwise be liable for any portion of any losses directly or indirectly incurred by the Company and arising out of or otherwise connected with the services performed or to be performed by Consultant pursuant to this Agreement. (b) Neither Consultant nor Consultant's Personnel shall be liable, responsible or in any way accountable in damages or otherwise to the Company or any other entity or person for any loss or damage incurred by the Company by reason of any act or omission to act by Consultant or Consultant's Personnel, except the willful and wanton misconduct or fraud of Consultant or or Consultant's Personnel in connection with the performance of Consultant's services hereunder. (c) Consultant does not represent, warrant, guarantee or ensure any particular business results from the services which may be performed for, or the projections, plans, reports or 157 17 studies which may be prepared for, the Company pursuant to this Agreement. (d) In the event that Consultant refers or introduces to the Company, or arranges for the Company to utilize the services of, third parties such as attorneys, accountants, investment bankers, brokers, finders, sales or marketing representatives, contractors or other consultants (who will not be retained without the consent of the Company, which will not be unreasonably withheld or delayed), such third parties will be direct contractors for the Company and not Consultant and their fees, commissions, disbursements and other charges will be the sole responsibility of the Company. 14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION. (a) Consultant shall hold, and shall use its best efforts to cause Consultant's Personnel to hold, in strict confidence for the benefit of the Company, all secret or confidential information, knowledge or data relating to the Company and its business, which shall have been obtained by Consultant or Consultant's Personnel during Consultant's retention by the Company and which shall not be or have become (i) generally available to the public other than as a result of a disclosure by Consultant, (ii) already known by Consultant on a non-confidential basis prior to having been furnished by the Company to Consultant or (iii) available to Consultant on a non-confidential basis from a source other than the Company if such source was not known to be subject to any prohibition against the transmittal of such information. Consultant will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such confidential information, knowledge or data to anyone other than the Company and those designated by it. In the event of a breach or threatened breach by Consultant of the immediately-preceding 158 18 paragraph of this subparagraph (a) of this paragraph 14, the Company shall be entitled, upon establishing the existence of such breach or threatened breach, to an injunction to be issued by any tribunal of competent jurisdiction to restrain Consultant from committing or continuing any such violation. In any proceeding for a temporary or permanent injunction, Consultant agrees that its ability to answer in damages shall not be a bar or be interposed as a defense to the granting of such a temporary or permanent injunction against it. Consultant acknowledges that the Company will not have an adequate remedy at law in the event of any breach by Consultant as aforesaid and that the Company may suffer irreparable damage and injury in the event of such a breach by Consultant. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedy or remedies available to the Company, including, without limitation, the recovery of damages from Consultant for any such breach. (b) The Company acknowledges that, in connection with Consultant's performance of its services hereunder, Consultant and Consultant's Personnel must at all times rely, as to accuracy and completeness, upon information furnished to them by the Company's officers, employees and agents. Accordingly, Consultant and Consultant's Personnel shall have no liability for any acts or omissions taken, or reports and documentation produced, in reliance upon information furnished to them by the Company's officers, employees and agents, and the Company shall, as provided above in paragraph 12, indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel, which are attributable to 159 19 such reliance by Consultant and Consultant's Personnel upon information furnished by the Company's officers, employees and agents. 15. SUCCESSORS. (a) This Agreement is personal to Consultant and, without the prior written consent of the Company, this Agreement shall not be assignable by Consultant. This Agreement shall inure to the benefit of, be binding upon and be enforceable by Consultant. (b) This Agreement shall not be assignable by the Company except to a successor of the Company which has complied with the requirements below of subparagraph (c) of this paragraph 15. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Company and its successors and assigns who have complied with the requirements below of subparagraph (c) of this paragraph 15. (c) The Company will require any successor (whether direct or indirect, by purchase of assets or capital stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinabove defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 16. GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. (b) Each party hereto, for itself and its successors and assigns, hereby consents to 160 20 personal jurisdiction over it in the courts of the State of New York, in and for New York County, and in any federal court located in the State of New York, in and for the Southern District of New York, in connection with any action, suit or proceeding arising out of or relating in any way to this Agreement. Each party hereto, for itself and its successors and assigns, agrees that personal service of process upon it may be made in any manner permitted by the laws of the State of New York and hereby agrees that service will be deemed sufficient over it if service is made by registered or certified mail to the addresses specified below in subparagraph (b) of paragraph 17. The Company, for itself and its successors and assigns, agrees that no action, suit or proceeding of any kind may be brought, and no claim may be asserted (whether by counterclaim, cross-claim or otherwise) by it or them against Consultant or Consultant's Personnel with respect to any matter arising from, relating to or in connection with this Agreement except in the courts of the State of New York, in and for New York County, and the federal courts located in the State of New York, in and for the Southern District of New York. 17. MISCELLANEOUS. (a) The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board of Directors or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices, requests, demands and other communications which are required or 161 21 permitted to be given under this Agreement shall be in writing and shall be deemed received (i) on the date delivered if personally delivered or sent by telecopier (with receipt confirmed), (ii) on the first business day after sent by an overnight air express delivery service guaranteeing next-day delivery or (iii) on the third business day after being deposited in the United States mail, if mailed by certified or registered mail, return receipt requested, with first class postage affixed thereon, and properly addressed as follows: (a) if to Consultant, to: DAT Consulting, LLC 85 West Hawthorne Avenue Valley Stream, NY 11580 FAX: 516/825-0063) with a copy to: Herrick, Feinstein LLP 2 Park Avenue New York, NY 10016 Attention: Leonard Grunstein, Esq. (FAX: 212/889-7577) (b) if to the Company, to: G.T. Styling, Inc. 16702 Von Karman Avenue Irvine, CA 92714 Attention: President (FAX: 714/476-9071) with a copy to: Stephen B. Delman, Esq. 10 River Road New York, NY 10044 (FAX: 212/279-9595) or to such other person or address as any party hereto shall have specified by notice in writing to the other party hereto. 162 22 (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) Consultant's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right which Consultant or the Ccmpany may have hereunder, including, without limitation, the right of Consultant to terminate employment for Good Reason pursuant to paragraph 7 above, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (e) This instrument contains the entire agreement of the parties hereto with respect to the subject matter hereof, and all promises, representations, understandings, arrangements and prior agreements are merged herein and superseded hereby. (f) This Agreement is for the sole benefit of the Company and Consultant (and, in connection with the indemnification provisions of paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein, express or implied, is intended to, or shall, confer on any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (g) Each of the parties hereto represents and warrants to the other party hereto that this Agreement has been duly authorized by all necessary corporate or company action, has been duly executed and delivered and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms. IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement 163 23 to be executed as of the day and year first above written. G.T. STYLING, INC. BY: /s/ JEFFERY J. GATI ----------------------------------------------- JEFFERY J. GATI, PRESIDENT DAT CONSULTING, LLC BY: WAVEROCK CONSULTING, INC. BY: /s/ ALLAN J. MARRUS ----------------------------------------------- ALLAN J. MARRUS, PRESIDENT BY: ROSEMARK, INC. BY: /s/ MARK ROSENBERG ----------------------------------------------- MARK ROSENBERG, PRESIDENT 164 EX-10.13 10 CONSULTING AGREEMENT BETWEEN GRIZZLY AND DAT 1 EXHIBIT 10.13 165 2 CONSULTING AGREEMENT CONSULTING AGREEMENT effective as of October 1, 1995 between GRIZZLY PRODUCTS, INC., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING, LLC, a New York limited liability company ("CONSULTANT"). W I T N E S S E T H : WHEREAS, the efficient conduct of the Company's business operations and the enhancement of its growth potential require that it have available to it the services of a suitable chief operating officer and the support of an organization which can offer the Company, on a consulting basis, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, Consultant has heretofore entered into a Consulting Agreement with the Company's affiliate, Grant Products, Inc. ("Grant"), pursuant to which Consultant is to provide to Grant not only the services of Tom A. Poteet (or of another suitable person) as the chief operating officer of Grant, but also, through the Company's resources, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, in view of the foregoing, the Company desires to retain Consultant, and Consultant is willing to be retained by the Company, to provide the Company with the services described above, on a consulting basis, during the term of this Agreement, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth below and intending to be legally bound, the parties hereto agree as 166 3 follows: 1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain the Consultant, and the Consultant hereby agrees to serve, as an independent management consultant to the Company, in accordance with the terms and provisions of this Agreement, during the Retention Period (as hereinafter defined). The "Retention Period" shall mean the five-year period beginning on the effective date of this Agreement and ending at the close of business on September 30, 2000, unless terminated sooner as hereinafter provided; provided, however, that, on each October 1 after the date hereof, the Retention Period shall be automatically extended for one (1) additional year unless, at least six (6) months prior to such October 1, either party hereto shall have notified the other party hereto that the Retention Period shall not be further extended. 2. CONSULTING SERVICES OF CONSULTANT. (a) The consulting services to be performed by Consultant as an independent management consultant to the Company during the Retention Period shall relate to administration, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisitions and shall, in addition to providing the Company with the managerial services of a chief operating officer (who may be Tom A. Poteet or another suitable person), include, but not be limited to, the following: (i) monitoring of the Company's business operations and product lines and providing general advice regarding the administration of the Company and its business; (ii) analysis of the operations of the Company with a view to improving the efficiency of its operations and enhancing the reputation of the Company and its products; 167 4 (iii) development of additional business relationships for the Company; (iv) assisting the Company in its labor relations with its employees (including the hiring of new management personnel) and in developing appropriate benefit programs for such employees; (v) analysis of the Company's plant and equipment requirements and, where necessary, the evaluation and negotiation of new lease transactions; (vi) review and evaluation of the Company's capital expenditure programs; (vii) assessing the Company's insurance needs and assisting the Company in negotiating favorable rates with insurance brokers and in placing such insurance; (viii) providing the Company with advice regarding its internal accounting and controls systems and procedures; (ix) assisting the Company in arranging the restructuring and/or refinancing of its existing credit facilities and in seeking other financing sources; (x) reviewing the Company's accounts receivable and making recommendations with respect to the extension of credit to customers; (xi) promoting the reputation of the Company in the investment community and evaluating opportunities for raising equity capital in the public or private capital markets; (xii) assisting the Company in strategic business planning and in analysis of potential acquisition candidates for the Company; (xiii) assisting the Company in negotiating and consummating acquisition transactions which the Company decides to pursue; (xiv) evaluation of proposed purchasers for assets or operations of the Company which have been designated for disposition; and (xv) evaluation and negotiation of proposed licensing arrangements. (b) In performing its services hereunder, Consultant expects to be utilizing the services of qualified personnel, such as Tom A. Poteet, Allan J. Marrus and other members, managers, officers, employees, agents and representatives of Consultant, as well as other persons (which 168 5 may include, directly or indirectly, other consultants and subconsultants) who may be retained by Consultant from time to time to perform such services. All members, managers, officers, employees, agents and representatives of Consultant, as well as any other persons (including direct or indirect consultants and subconsultants) who may be retained by Consultant from time to time in connection with Consultant's performance of its services to the Company hereunder, shall be compensated for their services directly by Consultant and not by the Company. All staffing decisions with respect to the services to be provided by Consultant hereunder shall be solely within the discretion of Consultant and, at any time and from time to time, Consultant may make any changes in such staffing which it considers necessary or appropriate. (c) Consultant and the Company acknowledge that the services to be performed by Consultant pursuant to this Agreement shall be performed by Consultant, including its members, managers, officers, employees, agents, representatives and other retained persons (including direct or indirect consultants and subconsultants) (all of which members, managers, officers, employees, agents, representatives and other retained persons are hereinafter collectively referred to as "Consultant's Personnel"), as an independent contractor and that nothing herein contained shall be deemed to constitute an employer-employee relationship between the Company, on the one hand, and Consultant (and Consultant's Personnel), on the other hand. (d) Although it is not possible to estimate the amount of time that Consultant's Personnel will be devoting to the performance of Consultant's services under this Agreement, Consultant agrees that it will cause Consultant's Personnel (none of whom, with the exception of the person designated to serve as the chief operating officer of the Company, will be required or expected to be employed by Consultant on a full-time basis) to devote such time, during normal business 169 6 hours, to the business and affairs of the Company as shall be reasonably necessary to enable Consultant to perform the services to be performed by Consultant hereunder. (e) The Company and Consultant acknowledge that the services to be performed by Consultant hereunder will generally not require that Consultant (or Consultant's Personnel), other than the person designated to serve as the chief operating officer of the Company, perform such services or otherwise be present at the Company's business premises in the State of California, though periodic visits to the Company's California location by one or more of Consultant's Personnel may be appropriate. Accordingly, it is contemplated that Consultant's services will generally be performed at such locations as shall be convenient for Consultant's Personnel and as Consultant from time to time shall, in its sole discretion consider appropriate, provided, however, that, when specifically requested by the Company, Consultant will make Consultant's Personnel available to meet with representatives of the Company at reasonable times upon reasonable notice. (f) The Company and Consultant acknowledge that nothing contained in this Agreement shall prohibit Consultant or Consultant's Personnel from (i) being a consultant, director, officer, employee, investor, lender, shareholder, joint venturer, partner, manager or member in, or serving in any other capacity with, any other enterprise, association, corporation, joint venture, partnership or company (hereinafter collectively referred to as the "Other Business"), provided that the business of the Other Business does not directly compete with the business of the Company, or (ii) serving in any capacity or having any business relationship with, or being affiliated in any manner with, the Company or any of its affiliates. 3. CONSULTING FEES. During the Retention Period, as full compensation for the services 170 7 to be rendered by Consultant pursuant to this Agreement, the Company agrees to pay to Consultant, and Consultant agrees to accept, consulting fees at an annual rate equal to the sum of (a) the total annual rate of payroll expense (including the cost to Consultant of employee benefit plans and programs and other employee perquisites) which the Company will incur with respect to Consultant's Personnel (who may include Tom A. Poteet) who shall be providing services to the Company on substantially a full-time basis and generally at the Company's business premises in the State of California, and (b) the amount which represents four percent (4%) of the Company's "net sales" for the applicable year. The consulting fees referred to in clause (a) of the preceding sentence are hereinafter referred to as the "Payroll Fees"; the consulting fees referred to in clause (b) of the preceding sentence are hereinafter referred to as the "Revenue Fees". The Payroll Fees payable hereunder shall be payable in equal monthly installments in advance on the 1st day of each month or, if such day is not a business day, on the immediately-preceding business day. The Revenue Fees payable hereunder shall be payable monthly in arrears, with each such monthly payment to be made within ten (10) days after the end of the month with respect to which the Revenue Fees are payable. At the request of Consultant, all payments of the Payroll Fees and the Revenue Fees (collectively, the "Consulting Fees") shall be made by wire transfer to such account or accounts as shall be designated from time to time by Consultant. For purposes of this Agreement, "net sales" shall be the total of the invoice prices for all products and services sold by the Company, less all returns, trade discounts and allowances. Returns, trade discounts and allowances shall be charged against gross revenues in the month during which they are accepted or allowed. Within ten (10) days after the end of each month 171 8 during the Retention Period, the Company will provide Consultant with a sales report for the preceding month which calculates the "net sales" of the Company for such month. Consultant shall be permitted access at any time to the Company's sales records for the purpose of verifying the accuracy of the sales reports so provided to Consultant. 4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees payable to Consultant as provided above in paragraph 3, Consultant shall be reimbursed, upon submission to the Company of appropriate vouchers and receipts, for out-of-pocket expenses (including, without limitation, travel expenses) reasonably incurred by Consultant in furtherance of the Company's business. Such reimbursement shall take place promptly after the required submissions, and in no event less frequently than bi-weekly. 5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of any other amounts payable to Consultant under this Agreement which are not paid when due shall bear interest at the rate which is 2% above the "prime" rate in effect from time to time. 6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its retention of Consultant under this Agreement at any time during the Retention Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated breaches by Consultant of Consultant's obligations under this Agreement, which breaches (a) were demonstrably willful and deliberate on Consultant's part, (b) were committed in bad faith or without the reasonable belief that such breaches were in the best interests of the Company and (c) have not been remedied in a reasonable period of time after receipt of written notice from the Company specifying such breaches and demanding that they be remedied within a reasonable period of time. 7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate its retention 172 9 by the Company under this Agreement for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to Consultant of any duties or responsibilities inconsistent in any respect with the terms of Consultant's retention hereunder or any other action by the Company which results in a diminution of Consultant's involvement with the business of the Company or its authorities, powers, functions or duties under this Agreement or imposes upon Consultant any requirement for the performance of its services hereunder which did not exist as of the date hereof, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given to the Company by Consultant; (b) any failure by the Company to pay when due any payment of the Consulting Fees or other amounts payable to Consultant hereunder, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Consultant; (c) any purported termination by the Company of Consultant's retention other than as expressly permitted by this Agreement; (d) any failure by the Company to comply with and satisfy subparagraph (c) of paragraph 15 below, provided that the successor to which such paragraph applies has received at least ten (10) days' prior written notice from the Company or the Consultant of the requirements of such paragraph; (e) the occurrence of a "Change in Control of the Company" (as hereinafter defined); or (f) (i) the filing by the Company of a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law, (ii) the making by the Company of a general assignment for the benefit of its creditors or of any other composition or reorganization agreement with its creditors, (iii) the appointment of a trustee or receiver of the Company or of the whole or any substantial part of its property or (iv) on a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law filed against the Company, the adjudication of the Company as a bankrupt, the failure of the Company to contest such filing, the admission by the Company of the material allegations of such petition or the failure of the Company to have such petition vacated, set aside or stayed within sixty (60) days from the date of the filing thereof. 173 10 Consultant may terminate its retention by the Company under this Agreement for "Good Reason" at any time during the Retention Period, except that any such termination pursuant to subparagraph (e) above of this paragraph 7 must take place within twelve (12) months after the occurrence of the "Change in Control of the Company". For purposes of this Agreement, any good faith determination of "Good Reason" made by Consultant shall be conclusive and binding on the Company, absent manifest error. For purposes of this Agreement, a "Change in Control of the Company" shall have occurred (i) if there has occurred a change in control of the Company as the term "control" is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons who are the current members of the Company's Board of Directors cease to constitute at least a majority of such Board of Directors and their replacements were not persons elected or appointed with the favorable vote or consent of Consultant; (iii) if the shareholder(s) of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iv) if the shareholder(s) of the Company approve a plan of complete liquidation of the Company; (v) if the shareholder(s) of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (vi) if the Company shall cease to be a member of the affiliated group (within the meaning of Section 1504(a) of the Internal 174 11 Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York corporation, is the parent corporation. 8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or by Consultant for Good Reason, shall be communicated by a Notice of Termination to the other party hereto in accordance with paragraph 16 below. For purposes of this Agreement, a "Notice of Termination" means a written notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Consultant's retention under the provision so indicated and (c) if the Termination Date (as hereinafter defined) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by Consultant or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not constitute a waiver of any right of Consultant or the Company hereunder or preclude Consultant or the Company from asserting such fact or circumstance in enforcing Consultant's or the Company's rights hereunder. 9. TERMINATION DATE. For purposes of this Agreement, the Termination Date means, whether Consultant's retention is terminated by the Company for Cause, by Consultant for Good Reason or otherwise by Consultant or the Company, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be. 10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT. (a) Prior to a Change in Control of the Company, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for 175 12 any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (assuming, for the purpose of this clause (iii), that the "net sales" of the Company during the remainder of the Retention Period after the Termination Date would increase at a growth rate of 6% per annum and provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date). (b) After a Change in Control of the Company has occurred, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) as Consultant, in its sole discretion may elect, either (A) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (assuming, for the purpose of this clause (A), that the "net sales" of the Company during the remainder of the Retention Period after the Termination Date would increase at a growth rate of 6% per annum and provided that the amount representing payment of such future Consulting Fees shall be 176 13 discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date), or (B) as liquidated damages (which the parties hereto acknowledge to be fair and reasonable in view of the impossibility of determining the actual damages which Consultant may suffer as a result of such termination), the sum of $750,000. (c) At any time during the Retention Period, if Consultant's retention is terminated by the Company for Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date and (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above. (d) In the event that, in the case of a termination by the Company of Consultant's retention for Cause, Consultant shall have notified the Company (the "Notice of Dispute"), within ten (10) business days after having received the Notice of Termination, that Consultant disputes whether the Company had "Cause" for such termination, then, notwithstanding and in addition to the payment required above by subparagraph (b) of this paragraph 10, the Company shall continue without interruption the payment of the Consulting Fees payable pursuant to paragraph 3 above, provided, however, that all such payments of the Consulting Fees shall be made to an attorney designated by Consultant for such purpose in the Notice of Dispute, with the aggregate amount of all such payments (and all interest earned thereon) being held in escrow by such attorney, pending (i) agreement by Consultant and the Company as to the issue of "Cause" and the disposition of the escrowed funds or (ii) a final, non-appealable order of a court of competent jurisdiction determining these matters (with the prevailing party with respect to such order be entitled to recover its attorneys' fees and disbursements, court costs and other 177 14 costs and expenses relating to this dispute from the other party). (e) Upon payment in full of the applicable payments required above by subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to subparagraph (d) of this paragraph 10), this Agreement shall terminate and be of no further force or effect, except that the provisions of paragraph 14 below shall survive such termination. (f) Consultant shall not be required to mitigate the payment of any payments received pursuant to subparagraphs (a), (b), (c) or (d) of this paragraph 10 by seeking other consulting engagements and, to the extent that Consultant shall, after the Termination Date, receive compensation from any other consulting engagements, the payments received hereunder shall not be adjusted. 11. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Consultant, any of Consultant's Personnel or others. 12. INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel by reason of the business and operations of the Company or Consultant's duties hereunder, excluding only such of the foregoing as are determined by a court of competent jurisdiction (without any further right of 178 15 appeal) to have resulted from the willful and wanton misconduct or fraud of Consultant or Consultant's Personnel. (b) Upon Consultant's discovery of any claim by a third party which, if sustained, would be subject to indemnification pursuant to subparagraph (a) of this paragraph 12, Consultant shall give prompt notice to the Company of such claim, provided, however, that the failure of Consultant to so promptly notify the Company of such claim shall not relieve the Company of any indemnification obligation under this Agreement unless the Company shall have been substantially prejudiced thereby. Unless Consultant shall, in its sole discretion, agree in writing to assume and control the defense of any action for which indemnification may be sought, the Company shall assume and control such defense, in which event Consultant shall have the right to employ counsel at Consultant's expense to represent it in addition to counsel employed by the Company. If the Company shall fail or refuse to undertake the defense within fifteen (15) days after receiving notice that a claim has been made, Consultant shall have the right (but not the obligation) to assume the defense of such claim in such manner as it deems appropriate until the Company shall, with the consent of Consultant, assume control of such defense, and the Company shall indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and against the costs and expenses of such defense. The party hereto handling the defense of an action shall keep the other party hereto fully informed at all times of the status of the claim. Neither the Company nor the Consultant, when handling the defense of a claim for which indemnification may be sought by Consultant, shall settle such claim without the consent of the other party hereto (which consent shall not be unreasonably withheld or delayed) unless such settlement shall (i) impose no additional liability or obligation upon the party hereto (or its 179 16 shareholders, directors and officers and, in the case of Consultant, Consultant's Personnel) whose consent would otherwise be required and (ii) where the Company is handling the defense and settlement of the claim, provide Consultant and Consultant's Personnel with a general release with respect to the subject claim. (c) In any matter with respect to which Consultant may be entitled to indemnification from the Company pursuant to subparagraph (a) of this paragraph 12, the Company shall, to the extent not prohibited by applicable law, advance to Consultant and Consultant's Personnel, pending the final disposition of such matter, all costs and expenses which Consultant and/or Consultant's Personnel may incur in such matter, including, without limitation, all attorneys' fees and disbursements, court costs and the fees and disbursements of accountants, other experts and consultants. (d) The rights of indemnification provided by this paragraph 12 shall be in addition to, and not be deemed exclusive of, any other rights and remedies apart from this Agreement which may be available to Consultant and Consultant's Personnel, whether by contract, at law, in equity or otherwise. 13. NO JOINT VENTURE, ETC. (a) Nothing in this Agreement shall be construed as (i) creating a partnership, joint venture or agency relationship between the Company and Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or otherwise be liable for any portion of any losses directly or indirectly incurred by the Company and arising out of or otherwise connected with the services performed or to be performed by Consultant pursuant to this Agreement. (b) Neither Consultant nor Consultant's Personnel shall be liable, responsible or in any 180 17 way accountable in damages or otherwise to the Company or any other entity or person for any loss or damage incurred by the Company by reason of any act or omission to act by Consultant or Consultant's Personnel, except the willful and wanton misconduct or fraud of Consultant or or Consultant's Personnel in connection with the performance of Consultant's services hereunder. (c) Consultant does not represent, warrant, guarantee or ensure any particular business results from the services which may be performed for, or the projections, plans, reports or studies which may be prepared for, the Company pursuant to this Agreement. (d) In the event that Consultant refers or introduces to the Company, or arranges for the Company to utilize the services of, third parties such as attorneys, accountants, investment bankers, brokers, finders, sales or marketing representatives, contractors or other consultants (who will not be retained without the consent of the Company, which will not be unreasonably withheld or delayed), such third parties will be direct contractors for the Company and not Consultant and their fees, commissions, disbursements and other charges will be the sole responsibility of the Company. 14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION. (a) Consultant shall hold, and shall use its best efforts to cause Consultant's Personnel to hold, in strict confidence for the benefit of the Company, all secret or confidential information, knowledge or data relating to the Company and its business, which shall have been obtained by Consultant or Consultant's Personnel during Consultant's retention by the Company and which shall not be or have become (i) generally available to the public other than as a result of a disclosure by Consultant, (ii) already known by Consultant on a non-confidential basis prior 181 18 to having been furnished by the Company to Consultant or (iii) available to Consultant on a non-confidential basis from a source other than the Company if such source was not known to be subject to any prohibition against the transmittal of such information. Consultant will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such confidential information, knowledge or data to anyone other than the Company and those designated by it. In the event of a breach or threatened breach by Consultant of the immediately-preceding paragraph of this subparagraph (a) of this paragraph 14, the Company shall be entitled, upon establishing the existence of such breach or threatened breach, to an injunction to be issued by any tribunal of competent jurisdiction to restrain Consultant from committing or continuing any such violation. In any proceeding for a temporary or permanent injunction, Consultant agrees that its ability to answer in damages shall not be a bar or be interposed as a defense to the granting of such a temporary or permanent injunction against it. Consultant acknowledges that the Company will not have an adequate remedy at law in the event of any breach by Consultant as aforesaid and that the Company may suffer irreparable damage and injury in the event of such a breach by Consultant. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedy or remedies available to the Company, including, without limitation, the recovery of damages from Consultant for any such breach. (b) The Company acknowledges that, in connection with Consultant's performance of its services hereunder, Consultant and Consultant's Personnel must at all times rely, as to accuracy and completeness, upon information furnished to them by the Company's officers, employees and agents. Accordingly, Consultant and Consultant's Personnel shall have no liability for any 182 19 acts or omissions taken, or reports and documentation produced, in reliance upon information furnished to them by the Company's officers, employees and agents, and the Company shall, as provided above in paragraph 12, indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel, which are attributable to such reliance by Consultant and Consultant's Personnel upon information furnished by the Company's officers, employees and agents. 15. SUCCESSORS. (a) This Agreement is personal to Consultant and, without the prior written consent of the Company, this Agreement shall not be assignable by Consultant. This Agreement shall inure to the benefit of, be binding upon and be enforceable by Consultant. (b) This Agreement shall not be assignable by the Company except to a successor of the Company which has complied with the requirements below of subparagraph (c) of this paragraph 15. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Company and its successors and assigns who have complied with the requirements below of subparagraph (c) of this paragraph 15. (c) The Company will require any successor (whether direct or indirect, by purchase of assets or capital stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if 183 20 no such succession had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinabove defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 16. GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. (b) Each party hereto, for itself and its successors and assigns, hereby consents to personal jurisdiction over it in the courts of the State of New York, in and for New York County, and in any federal court located in the State of New York, in and for the Southern District of New York, in connection with any action, suit or proceeding arising out of or relating in any way to this Agreement. Each party hereto, for itself and its successors and assigns, agrees that personal service of process upon it may be made in any manner permitted by the laws of the State of New York and hereby agrees that service will be deemed sufficient over it if service is made by registered or certified mail to the addresses specified below in subparagraph (b) of paragraph 17. The Company, for itself and its successors and assigns, agrees that no action, suit or proceeding of any kind may be brought, and no claim may be asserted (whether by counterclaim, cross-claim or otherwise) by it or them against Consultant or Consultant's Personnel with respect to any matter arising from, relating to or in connection with this Agreement except in the courts of the State of New York, in and for New York County, and the federal courts located in the State of New York, in and for the Southern District of New York. 17. MISCELLANEOUS. (a) The captions of this Agreement are not part of the provisions hereof and shall have 184 21 no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board of Directors or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed received (i) on the date delivered if personally delivered or sent by telecopier (with receipt confirmed), (ii) on the first business day after sent by an overnight air express delivery service guaranteeing next-day delivery or (iii) on the third business day after being deposited in the United States mail, if mailed by certified or registered mail, return receipt requested, with first class postage affixed thereon, and properly addressed as follows: (a) if to Consultant, to: DAT Consulting, LLC 85 West Hawthorne Avenue Valley Stream, NY 11580 FAX: 516/825-0063) with a copy to: Herrick, Feinstein LLP 2 Park Avenue New York, NY 10016 Attention: Leonard Grunstein, Esq. (FAX: 212/889-7577) 185 22 (b) if to the Company, to: Grizzly Products, Inc. 1802 Santo Domingo Avenue Duarte, CA 91010 Attention: President (FAX: 818/357-4017) with a copy to: Stephen B. Delman, Esq. 10 River Road New York, NY 10044 (FAX: 212/279-9595) or to such other person or address as any party hereto shall have specified by notice in writing to the other party hereto. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) Consultant's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right which Consultant or the Ccmpany may have hereunder, including, without limitation, the right of Consultant to terminate employment for Good Reason pursuant to paragraph 7 above, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (e) This instrument contains the entire agreement of the parties hereto with respect to the subject matter hereof, and all promises, representations, understandings, arrangements and prior agreements are merged herein and superseded hereby. (f) This Agreement is for the sole benefit of the Company and Consultant (and, in connection with the indemnification provisions of paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein, express or implied, is intended to, or shall, confer on any other 186 23 person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (g) Each of the parties hereto represents and warrants to the other party hereto that this Agreement has been duly authorized by all necessary corporate or company action, has been duly executed and delivered and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms. IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement to be executed as of the day and year first above written. GRIZZLY PRODUCTS, INC. BY: /s/ TOM A. POTEET ----------------------------------------------- TOM A. POTEET, PRESIDENT DAT CONSULTING, LLC BY: WAVEROCK CONSULTING, INC. BY: /s/ ALLAN J. MARRUS ----------------------------------------------- ALLAN J. MARRUS, PRESIDENT BY: ROSEMARK, INC. BY: /s/ MARK ROSENBERG ----------------------------------------------- MARK ROSENBERG, PRESIDENT 187 EX-10.14 11 CONSULTING AGREEMENT BETWEEN A & A AND DAT 1 EXHIBIT 10.14 188 2 CONSULTING AGREEMENT CONSULTING AGREEMENT effective as of October 1, 1995 between A & A SPECIALTIES CORP., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING, LLC, a New York limited liability company ("CONSULTANT"). W I T N E S S E T H : WHEREAS, the efficient conduct of the Company's business operations and the enhancement of its growth potential require that it have available to it the services of a suitable chief operating officer and the support of an organization which can offer the Company, on a consulting basis, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, Consultant has heretofore entered into a Consulting Agreement with the Company's affiliate, G.T. Styling, Inc. ("GTS"), pursuant to which Consultant is to provide to GTS not only the services of Jeffery J. Gati (or of another suitable person) as the chief operating officer of GTS, but also, through the Company's resources, a broad range of administrative, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisition-related management consulting services; and WHEREAS, in view of the foregoing, the Company desires to retain Consultant, and Consultant is willing to be retained by the Company, to provide the Company with the services described above, on a consulting basis, during the term of this Agreement, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth below and intending to be legally bound, the parties hereto agree as 189 3 follows: 1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain the Consultant, and the Consultant hereby agrees to serve, as an independent management consultant to the Company, in accordance with the terms and provisions of this Agreement, during the Retention Period (as hereinafter defined). The "Retention Period" shall mean the five-year period beginning on the effective date of this Agreement and ending at the close of business on September 30, 2000, unless terminated sooner as hereinafter provided; provided, however, that, on each October 1 after the date hereof, the Retention Period shall be automatically extended for one (1) additional year unless, at least six (6) months prior to such October 1, either party hereto shall have notified the other party hereto that the Retention Period shall not be further extended. 2. CONSULTING SERVICES OF CONSULTANT. (a) The consulting services to be performed by Consultant as an independent management consultant to the Company during the Retention Period shall relate to administration, strategic planning, business development, financial analysis and structuring, licensing, leasing and acquisitions and shall, in addition to providing the Company with the managerial services of a chief operating officer (who may be Jeffery J. Gati or another suitable person), include, but not be limited to, the following: (i) monitoring of the Company's business operations and product lines and providing general advice regarding the administration of the Company and its business; (ii) analysis of the operations of the Company with a view to improving the efficiency of its operations and enhancing the reputation of the Company and its products; 190 4 (iii) development of additional business relationships for the Company; (iv) assisting the Company in its labor relations with its employees (including the hiring of new management personnel) and in developing appropriate benefit programs for such employees; (v) analysis of the Company's plant and equipment requirements and, where necessary, the evaluation and negotiation of new lease transactions; (vi) review and evaluation of the Company's capital expenditure programs; (vii) assessing the Company's insurance needs and assisting the Company in negotiating favorable rates with insurance brokers and in placing such insurance; (viii) providing the Company with advice regarding its internal accounting and controls systems and procedures; (ix) assisting the Company in arranging the restructuring and/or refinancing of its existing credit facilities and in seeking other financing sources; (x) reviewing the Company's accounts receivable and making recommendations with respect to the extension of credit to customers; (xi) promoting the reputation of the Company in the investment community and evaluating opportunities for raising equity capital in the public or private capital markets; (xii) assisting the Company in strategic business planning and in analysis of potential acquisition candidates for the Company; (xiii) assisting the Company in negotiating and consummating acquisition transactions which the Company decides to pursue; (xiv) evaluation of proposed purchasers for assets or operations of the Company which have been designated for disposition; and (xv) evaluation and negotiation of proposed licensing arrangements. (b) In performing its services hereunder, Consultant expects to be utilizing the services of qualified personnel, such as Jeffery J. Gati, Allan J. Marrus and other members, managers, officers, employees, agents and representatives of Consultant, as well as other persons (which 191 5 may include, directly or indirectly, other consultants and subconsultants) who may be retained by Consultant from time to time to perform such services. All members, managers, officers, employees, agents and representatives of Consultant, as well as any other persons (including direct or indirect consultants and subconsultants) who may be retained by Consultant from time to time in connection with Consultant's performance of its services to the Company hereunder, shall be compensated for their services directly by Consultant and not by the Company. All staffing decisions with respect to the services to be provided by Consultant hereunder shall be solely within the discretion of Consultant and, at any time and from time to time, Consultant may make any changes in such staffing which it considers necessary or appropriate. (c) Consultant and the Company acknowledge that the services to be performed by Consultant pursuant to this Agreement shall be performed by Consultant, including its members, managers, officers, employees, agents, representatives and other retained persons (including direct or indirect consultants and subconsultants) (all of which members, managers, officers, employees, agents, representatives and other retained persons are hereinafter collectively referred to as "Consultant's Personnel"), as an independent contractor and that nothing herein contained shall be deemed to constitute an employer-employee relationship between the Company, on the one hand, and Consultant (and Consultant's Personnel), on the other hand. (d) Although it is not possible to estimate the amount of time that Consultant's Personnel will be devoting to the performance of Consultant's services under this Agreement, Consultant agrees that it will cause Consultant's Personnel (none of whom, with the exception of the person designated to serve as the chief operating officer of the Company, will be required or expected to be employed by Consultant on a full-time basis) to devote such time, during normal business 192 6 hours, to the business and affairs of the Company as shall be reasonably necessary to enable Consultant to perform the services to be performed by Consultant hereunder. (e) The Company and Consultant acknowledge that the services to be performed by Consultant hereunder will generally not require that Consultant (or Consultant's Personnel), other than the person designated to serve as the chief operating officer of the Company, perform such services or otherwise be present at the Company's business premises in the State of California, though periodic visits to the Company's California location by one or more of Consultant's Personnel may be appropriate. Accordingly, it is contemplated that Consultant's services will generally be performed at such locations as shall be convenient for Consultant's Personnel and as Consultant from time to time shall, in its sole discretion consider appropriate, provided, however, that, when specifically requested by the Company, Consultant will make Consultant's Personnel available to meet with representatives of the Company at reasonable times upon reasonable notice. (f) The Company and Consultant acknowledge that nothing contained in this Agreement shall prohibit Consultant or Consultant's Personnel from (i) being a consultant, director, officer, employee, investor, lender, shareholder, joint venturer, partner, manager or member in, or serving in any other capacity with, any other enterprise, association, corporation, joint venture, partnership or company (hereinafter collectively referred to as the "Other Business"), provided that the business of the Other Business does not directly compete with the business of the Company, or (ii) serving in any capacity or having any business relationship with, or being affiliated in any manner with, the Company or any of its affiliates. 3. CONSULTING FEES. During the Retention Period, as full compensation for the services 193 7 to be rendered by Consultant pursuant to this Agreement, the Company agrees to pay to Consultant, and Consultant agrees to accept, consulting fees at an annual rate equal to the sum of (a) the total annual rate of payroll expense (including the cost to Consultant of employee benefit plans and programs and other employee perquisites) which the Company will incur with respect to Consultant's Personnel (who may include Tom A. Poteet) who shall be providing services to the Company on substantially a full-time basis and generally at the Company's business premises in the State of California, and (b) the amount which represents four percent (4%) of the Company's "net sales" for the applicable year. The consulting fees referred to in clause (a) of the preceding sentence are hereinafter referred to as the "Payroll Fees"; the consulting fees referred to in clause (b) of the preceding sentence are hereinafter referred to as the "Revenue Fees". The Payroll Fees payable hereunder shall be payable in equal monthly installments in advance on the 1st day of each month or, if such day is not a business day, on the immediately-preceding business day. The Revenue Fees payable hereunder shall be payable monthly in arrears, with each such monthly payment to be made within ten (10) days after the end of the month with respect to which the Revenue Fees are payable. At the request of Consultant, all payments of the Payroll Fees and the Revenue Fees (collectively, the "Consulting Fees") shall be made by wire transfer to such account or accounts as shall be designated from time to time by Consultant. For purposes of this Agreement, "net sales" shall be the total of the invoice prices for all products and services sold by the Company, less all returns, trade discounts and allowances. Returns, trade discounts and allowances shall be charged against gross revenues in the month during which they are accepted or allowed. Within ten (10) days after the end of each month 194 8 during the Retention Period, the Company will provide Consultant with a sales report for the preceding month which calculates the "net sales" of the Company for such month. Consultant shall be permitted access at any time to the Company's sales records for the purpose of verifying the accuracy of the sales reports so provided to Consultant. 4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees payable to Consultant as provided above in paragraph 3, Consultant shall be reimbursed, upon submission to the Company of appropriate vouchers and receipts, for out-of-pocket expenses (including, without limitation, travel expenses) reasonably incurred by Consultant in furtherance of the Company's business. Such reimbursement shall take place promptly after the required submissions, and in no event less frequently than bi-weekly. 5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of any other amounts payable to Consultant under this Agreement which are not paid when due shall bear interest at the rate which is 2% above the "prime" rate in effect from time to time. 6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its retention of Consultant under this Agreement at any time during the Retention Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated breaches by Consultant of Consultant's obligations under this Agreement, which breaches (a) were demonstrably willful and deliberate on Consultant's part, (b) were committed in bad faith or without the reasonable belief that such breaches were in the best interests of the Company and (c) have not been remedied in a reasonable period of time after receipt of written notice from the Company specifying such breaches and demanding that they be remedied within a reasonable period of time. 7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate its retention 195 9 by the Company under this Agreement for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to Consultant of any duties or responsibilities inconsistent in any respect with the terms of Consultant's retention hereunder or any other action by the Company which results in a diminution of Consultant's involvement with the business of the Company or its authorities, powers, functions or duties under this Agreement or imposes upon Consultant any requirement for the performance of its services hereunder which did not exist as of the date hereof, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given to the Company by Consultant; (b) any failure by the Company to pay when due any payment of the Consulting Fees or other amounts payable to Consultant hereunder, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Consultant; (c) any purported termination by the Company of Consultant's retention other than as expressly permitted by this Agreement; (d) any failure by the Company to comply with and satisfy subparagraph (c) of paragraph 15 below, provided that the successor to which such paragraph applies has received at least ten (10) days' prior written notice from the Company or the Consultant of the requirements of such paragraph; (e) the occurrence of a "Change in Control of the Company" (as hereinafter defined); or (f) (i) the filing by the Company of a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law, (ii) the making by the Company of a general assignment for the benefit of its creditors or of any other composition or reorganization agreement with its creditors, (iii) the appointment of a trustee or receiver of the Company or of the whole or any substantial part of its property or (iv) on a petition in bankruptcy or seeking reorganization or arrangement under any federal or state bankruptcy, insolvency or reorganization law filed against the Company, the adjudication of the Company as a bankrupt, the failure of the Company to contest such filing, the admission by the Company of the material allegations of such petition or the failure of the Company to have such petition vacated, set aside or stayed within sixty (60) days from the date of the filing thereof. 196 10 Consultant may terminate its retention by the Company under this Agreement for "Good Reason" at any time during the Retention Period, except that any such termination pursuant to subparagraph (e) above of this paragraph 7 must take place within twelve (12) months after the occurrence of the "Change in Control of the Company". For purposes of this Agreement, any good faith determination of "Good Reason" made by Consultant shall be conclusive and binding on the Company, absent manifest error. For purposes of this Agreement, a "Change in Control of the Company" shall have occurred (i) if there has occurred a change in control of the Company as the term "control" is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons who are the current members of the Company's Board of Directors cease to constitute at least a majority of such Board of Directors and their replacements were not persons elected or appointed with the favorable vote or consent of Consultant; (iii) if the shareholder(s) of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iv) if the shareholder(s) of the Company approve a plan of complete liquidation of the Company; (v) if the shareholder(s) of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (vi) if the Company shall cease to be a member of the affiliated group (within the meaning of Section 1504(a) of the Internal 197 11 Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York corporation, is the parent corporation. 8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or by Consultant for Good Reason, shall be communicated by a Notice of Termination to the other party hereto in accordance with paragraph 16 below. For purposes of this Agreement, a "Notice of Termination" means a written notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Consultant's retention under the provision so indicated and (c) if the Termination Date (as hereinafter defined) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by Consultant or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not constitute a waiver of any right of Consultant or the Company hereunder or preclude Consultant or the Company from asserting such fact or circumstance in enforcing Consultant's or the Company's rights hereunder. 9. TERMINATION DATE. For purposes of this Agreement, the Termination Date means, whether Consultant's retention is terminated by the Company for Cause, by Consultant for Good Reason or otherwise by Consultant or the Company, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be. 10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT. (a) Prior to a Change in Control of the Company, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for 198 12 any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (assuming, for the purpose of this clause (iii), that the "net sales" of the Company during the remainder of the Retention Period after the Termination Date would increase at a growth rate of 6% per annum and provided that the amount representing payment of such future Consulting Fees shall be discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date). (b) After a Change in Control of the Company has occurred, if Consultant terminates its retention by the Company for Good Reason or if Consultant's retention is terminated by the Company for any reason other than Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and (iii) as Consultant, in its sole discretion may elect, either (A) all Consulting Fees which would be payable to Consultant through the end of the Retention Period if Consultant were to continue to perform its services hereunder through the end of the Retention Period (assuming, for the purpose of this clause (A), that the "net sales" of the Company during the remainder of the Retention Period after the Termination Date would increase at a growth rate of 6% per annum and provided that the amount representing payment of such future Consulting Fees shall be 199 13 discounted to their present value, applying a discount rate equal to 1% below the "prime" rate as in effect at the close of business on the business day immediately preceding the Termination Date), or (B) as liquidated damages (which the parties hereto acknowledge to be fair and reasonable in view of the impossibility of determining the actual damages which Consultant may suffer as a result of such termination), the sum of $600,000. (c) At any time during the Retention Period, if Consultant's retention is terminated by the Company for Cause, the Company shall pay to Consultant, in cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees through the Termination Date and (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4 above. (d) In the event that, in the case of a termination by the Company of Consultant's retention for Cause, Consultant shall have notified the Company (the "Notice of Dispute"), within ten (10) business days after having received the Notice of Termination, that Consultant disputes whether the Company had "Cause" for such termination, then, notwithstanding and in addition to the payment required above by subparagraph (b) of this paragraph 10, the Company shall continue without interruption the payment of the Consulting Fees payable pursuant to paragraph 3 above, provided, however, that all such payments of the Consulting Fees shall be made to an attorney designated by Consultant for such purpose in the Notice of Dispute, with the aggregate amount of all such payments (and all interest earned thereon) being held in escrow by such attorney, pending (i) agreement by Consultant and the Company as to the issue of "Cause" and the disposition of the escrowed funds or (ii) a final, non-appealable order of a court of competent jurisdiction determining these matters (with the prevailing party with respect to such order be entitled to recover its attorneys' fees and disbursements, court costs and other 200 14 costs and expenses relating to this dispute from the other party). (e) Upon payment in full of the applicable payments required above by subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to subparagraph (d) of this paragraph 10), this Agreement shall terminate and be of no further force or effect, except that the provisions of paragraph 14 below shall survive such termination. (f) Consultant shall not be required to mitigate the payment of any payments received pursuant to subparagraphs (a), (b), (c) or (d) of this paragraph 10 by seeking other consulting engagements and, to the extent that Consultant shall, after the Termination Date, receive compensation from any other consulting engagements, the payments received hereunder shall not be adjusted. 11. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Consultant, any of Consultant's Personnel or others. 12. INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel by reason of the business and operations of the Company or Consultant's duties hereunder, excluding only such of the foregoing as are determined by a court of competent jurisdiction (without any further right of 201 15 appeal) to have resulted from the willful and wanton misconduct or fraud of Consultant or Consultant's Personnel. (b) Upon Consultant's discovery of any claim by a third party which, if sustained, would be subject to indemnification pursuant to subparagraph (a) of this paragraph 12, Consultant shall give prompt notice to the Company of such claim, provided, however, that the failure of Consultant to so promptly notify the Company of such claim shall not relieve the Company of any indemnification obligation under this Agreement unless the Company shall have been substantially prejudiced thereby. Unless Consultant shall, in its sole discretion, agree in writing to assume and control the defense of any action for which indemnification may be sought, the Company shall assume and control such defense, in which event Consultant shall have the right to employ counsel at Consultant's expense to represent it in addition to counsel employed by the Company. If the Company shall fail or refuse to undertake the defense within fifteen (15) days after receiving notice that a claim has been made, Consultant shall have the right (but not the obligation) to assume the defense of such claim in such manner as it deems appropriate until the Company shall, with the consent of Consultant, assume control of such defense, and the Company shall indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and against the costs and expenses of such defense. The party hereto handling the defense of an action shall keep the other party hereto fully informed at all times of the status of the claim. Neither the Company nor the Consultant, when handling the defense of a claim for which indemnification may be sought by Consultant, shall settle such claim without the consent of the other party hereto (which consent shall not be unreasonably withheld or delayed) unless such settlement shall (i) impose no additional liability or obligation upon the party hereto (or its 202 16 shareholders, directors and officers and, in the case of Consultant, Consultant's Personnel) whose consent would otherwise be required and (ii) where the Company is handling the defense and settlement of the claim, provide Consultant and Consultant's Personnel with a general release with respect to the subject claim. (c) In any matter with respect to which Consultant may be entitled to indemnification from the Company pursuant to subparagraph (a) of this paragraph 12, the Company shall, to the extent not prohibited by applicable law, advance to Consultant and Consultant's Personnel, pending the final disposition of such matter, all costs and expenses which Consultant and/or Consultant's Personnel may incur in such matter, including, without limitation, all attorneys' fees and disbursements, court costs and the fees and disbursements of accountants, other experts and consultants. (d) The rights of indemnification provided by this paragraph 12 shall be in addition to, and not be deemed exclusive of, any other rights and remedies apart from this Agreement which may be available to Consultant and Consultant's Personnel, whether by contract, at law, in equity or otherwise. 13. NO JOINT VENTURE, ETC. (a) Nothing in this Agreement shall be construed as (i) creating a partnership, joint venture or agency relationship between the Company and Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or otherwise be liable for any portion of any losses directly or indirectly incurred by the Company and arising out of or otherwise connected with the services performed or to be performed by Consultant pursuant to this Agreement. (b) Neither Consultant nor Consultant's Personnel shall be liable, responsible or in any 203 17 way accountable in damages or otherwise to the Company or any other entity or person for any loss or damage incurred by the Company by reason of any act or omission to act by Consultant or Consultant's Personnel, except the willful and wanton misconduct or fraud of Consultant or or Consultant's Personnel in connection with the performance of Consultant's services hereunder. (c) Consultant does not represent, warrant, guarantee or ensure any particular business results from the services which may be performed for, or the projections, plans, reports or studies which may be prepared for, the Company pursuant to this Agreement. (d) In the event that Consultant refers or introduces to the Company, or arranges for the Company to utilize the services of, third parties such as attorneys, accountants, investment bankers, brokers, finders, sales or marketing representatives, contractors or other consultants (who will not be retained without the consent of the Company, which will not be unreasonably withheld or delayed), such third parties will be direct contractors for the Company and not Consultant and their fees, commissions, disbursements and other charges will be the sole responsibility of the Company. 14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION. (a) Consultant shall hold, and shall use its best efforts to cause Consultant's Personnel to hold, in strict confidence for the benefit of the Company, all secret or confidential information, knowledge or data relating to the Company and its business, which shall have been obtained by Consultant or Consultant's Personnel during Consultant's retention by the Company and which shall not be or have become (i) generally available to the public other than as a result of a disclosure by Consultant, (ii) already known by Consultant on a non-confidential basis prior 204 18 to having been furnished by the Company to Consultant or (iii) available to Consultant on a non-confidential basis from a source other than the Company if such source was not known to be subject to any prohibition against the transmittal of such information. Consultant will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such confidential information, knowledge or data to anyone other than the Company and those designated by it. In the event of a breach or threatened breach by Consultant of the immediately-preceding paragraph of this subparagraph (a) of this paragraph 14, the Company shall be entitled, upon establishing the existence of such breach or threatened breach, to an injunction to be issued by any tribunal of competent jurisdiction to restrain Consultant from committing or continuing any such violation. In any proceeding for a temporary or permanent injunction, Consultant agrees that its ability to answer in damages shall not be a bar or be interposed as a defense to the granting of such a temporary or permanent injunction against it. Consultant acknowledges that the Company will not have an adequate remedy at law in the event of any breach by Consultant as aforesaid and that the Company may suffer irreparable damage and injury in the event of such a breach by Consultant. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedy or remedies available to the Company, including, without limitation, the recovery of damages from Consultant for any such breach. (b) The Company acknowledges that, in connection with Consultant's performance of its services hereunder, Consultant and Consultant's Personnel must at all times rely, as to accuracy and completeness, upon information furnished to them by the Company's officers, employees and agents. Accordingly, Consultant and Consultant's Personnel shall have no liability for any 205 19 acts or omissions taken, or reports and documentation produced, in reliance upon information furnished to them by the Company's officers, employees and agents, and the Company shall, as provided above in paragraph 12, indemnify, defend and hold harmless Consultant and Consultant's Personnel from and against any and all claims, demands, actions, suits and other proceedings, judgments and awards, and all costs and expenses thereof (including, without limitation, attorneys' fees and disbursements, court costs and amounts paid in settlement of such matters), asserted against Consultant and/or Consultant's Personnel, which are attributable to such reliance by Consultant and Consultant's Personnel upon information furnished by the Company's officers, employees and agents. 15. SUCCESSORS. (a) This Agreement is personal to Consultant and, without the prior written consent of the Company, this Agreement shall not be assignable by Consultant. This Agreement shall inure to the benefit of, be binding upon and be enforceable by Consultant. (b) This Agreement shall not be assignable by the Company except to a successor of the Company which has complied with the requirements below of subparagraph (c) of this paragraph 15. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Company and its successors and assigns who have complied with the requirements below of subparagraph (c) of this paragraph 15. (c) The Company will require any successor (whether direct or indirect, by purchase of assets or capital stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if 206 20 no such succession had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinabove defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 16. GOVERNING LAW; CONSENT TO JURISDICTION. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. (b) Each party hereto, for itself and its successors and assigns, hereby consents to personal jurisdiction over it in the courts of the State of New York, in and for New York County, and in any federal court located in the State of New York, in and for the Southern District of New York, in connection with any action, suit or proceeding arising out of or relating in any way to this Agreement. Each party hereto, for itself and its successors and assigns, agrees that personal service of process upon it may be made in any manner permitted by the laws of the State of New York and hereby agrees that service will be deemed sufficient over it if service is made by registered or certified mail to the addresses specified below in subparagraph (b) of paragraph 17. The Company, for itself and its successors and assigns, agrees that no action, suit or proceeding of any kind may be brought, and no claim may be asserted (whether by counterclaim, cross-claim or otherwise) by it or them against Consultant or Consultant's Personnel with respect to any matter arising from, relating to or in connection with this Agreement except in the courts of the State of New York, in and for New York County, and the federal courts located in the State of New York, in and for the Southern District of New York. 17. MISCELLANEOUS. (a) The captions of this Agreement are not part of the provisions hereof and shall have 207 21 no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board of Directors or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed received (i) on the date delivered if personally delivered or sent by telecopier (with receipt confirmed), (ii) on the first business day after sent by an overnight air express delivery service guaranteeing next-day delivery or (iii) on the third business day after being deposited in the United States mail, if mailed by certified or registered mail, return receipt requested, with first class postage affixed thereon, and properly addressed as follows: (a) if to Consultant, to: DAT Consulting, LLC 85 West Hawthorne Avenue Valley Stream, NY 11580 FAX: 516/825-0063) with a copy to: Herrick, Feinstein LLP 2 Park Avenue New York, NY 10016 Attention: Leonard Grunstein, Esq. (FAX: 212/889-7577) 208 22 (b) if to the Company, to: A & A Specialties Corp. 220 E. Santa Fe Avenue Placentia, CA 92670 Attention: President (FAX: 714/993-3402) with a copy to: Stephen B. Delman, Esq. 10 River Road New York, NY 10044 (FAX: 212/279-9595) or to such other person or address as any party hereto shall have specified by notice in writing to the other party hereto. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) Consultant's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right which Consultant or the Ccmpany may have hereunder, including, without limitation, the right of Consultant to terminate employment for Good Reason pursuant to paragraph 7 above, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (e) This instrument contains the entire agreement of the parties hereto with respect to the subject matter hereof, and all promises, representations, understandings, arrangements and prior agreements are merged herein and superseded hereby. (f) This Agreement is for the sole benefit of the Company and Consultant (and, in connection with the indemnification provisions of paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein, express or implied, is intended to, or shall, confer on any other 209 23 person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (g) Each of the parties hereto represents and warrants to the other party hereto that this Agreement has been duly authorized by all necessary corporate or company action, has been duly executed and delivered and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms. IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement to be executed as of the day and year first above written. A & A SPECIALTIES CORP. BY: /s/ JEFFERY J. GATI ----------------------------------------------- JEFFERY J. GATI, PRESIDENT DAT CONSULTING, LLC BY: WAVEROCK CONSULTING, INC. BY: /s/ ALLAN J. MARRUS ----------------------------------------------- ALLAN J. MARRUS, PRESIDENT BY: ROSEMARK, INC. BY: /s/ MARK ROSENBERG ----------------------------------------------- MARK ROSENBERG, PRESIDENT 210 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS FEB-28-1996 FEB-28-1996 JUN-01-1995 MAR-01-1995 AUG-31-1995 AUG-31-1995 1,663 1,663 0 0 12,248 12,248 0 0 6,429 6,429 21,238 21,238 1,450 1,450 0 0 23,392 23,392 20,268 20,268 0 0 0 0 0 0 0 0 (124,362) (124,362) 23,392 23,392 15,276 28,426 15,290 28,449 9,744 17,676 9,744 17,676 4,253 8,288 0 0 2,698 5,356 (1,405) (2,871) 0 0 (1,405) (2,871) 0 0 0 0 0 0 (1,405) (2,871) (.05) (.09) (.05) (.09)
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